Technical Analysis

AUD/USD Price Analysis – Feb 01, 2024

By LonghornFX Technical Analysis
Feb 1, 20244 min

Daily Price Outlook

The AUD/USD currency pair continued its downward trend and remained well offered around the $0.6527 level. However, the reason for this decline can be attributed to downbeat Australian data, which undermined the Australian dollar and contributed to losses in the AUD/USD pair. Furthermore, the bullish US dollar, backed by Fed Chair Powell's hawkish comments, played a significant role in supporting the downward movement of the AUD/USD currency pair.

Australian Dollar Challenges Amidst RBA's Potential Interest Rate Cuts

It's important to highlight that Australia's dollar has been facing challenges due to rising expectations of early interest rate cuts by the Reserve Bank of Australia (RBA). This follows a weaker-than-expected quarterly inflation report. Although the RBA is likely to maintain the cash rate at 4.35% in February, bond traders are pricing in two quarter-point reductions in 2024, starting possibly in August.

Moreover, National Australia Bank's Business Confidence for Q4 decreased to -6, indicating a decline in business sentiment. Building Permits (MoM) also fell by 9.5% in December, contrasting with the expected growth of 1.1%. In China, the Caixin Manufacturing PMI for January held steady at 50.8, slightly exceeding the anticipated 50.6 reading.

Australia's Monthly Consumer Price Index (CPI) reported a year-on-year increase of 3.4% in December, lower than both November's 4.3% and the expected 3.7%. RBA Trimmed Mean CPI (YoY) for Q4 decreased to 4.2%, below the previous 5.2% and the expected 4.3%. Additionally, the Australian CPI (QoQ) figure for December was 0.6%, softer than the expected 0.8% and a notable drop from the previous 1.2%.

US Dollar Strength and Challenges for AUD/USD Amid Economic Indicators and Global Tensions

Moreover, the US Dollar initially faced losses due to disappointing employment figures but rebounded after hawkish comments from Fed Chair Powell. Increasing US Treasury yields further supported the USD. In the meantime, the heightened tensions in the Middle East, causing increased risk aversion, also contributed to the Dollar's strength, posing a challenge for the AUD/USD pair.

It should be noted that the US ADP Employment Change fell short at 107K in January, below the expected 145K. Despite a decrease in yields, the US Treasury remains sustainable since October 2023, with stronger economic growth improving tax receipts. The US plans to borrow $760 billion in Q1, lower than the October estimate of $816 billion. The Employment Cost Index eased to 0.9% in Q4, below the expected 1.0%. The Chicago Purchasing Managers' Index was 46 in January, missing the expected increase, and US JOLTS Job Openings improved to 9.026M in December, surpassing the anticipated 8.75M. The US Housing Price Index (MoM) remained unchanged at 0.3% in November.

AUD/USD Price Chart – Source: Tradingview
AUD/USD Price Chart – Source: Tradingview

AUD/USD - Technical Analysis

The AUD/USD pair, on February 1st, exhibits a slight downtrend, trading at 0.65660, marking a marginal decrease of 0.01%. This subtle movement points towards a cautious market sentiment, as traders navigate through the key technical levels identified for this currency pair.

The technical landscape outlines a pivot point at 0.6545, suggesting an immediate battleground for bulls and bears. Resistance levels are set at 0.6583, 0.6615, and 0.6653, each representing potential reversal points in the short-term bullish scenario. Conversely, support is found at 0.6514, with further floors at 0.6475 and 0.6436, crucial for holding the pair in a downtrend.

The Relative Strength Index (RSI) stands at 42, indicating a lean towards bearish momentum without reaching oversold conditions. The Moving Average Convergence Divergence (MACD) underscores this sentiment, with a value of -0.00054 beneath the signal line of -0.00035, hinting at potential downward momentum.

The 50-day Exponential Moving Average (EMA) at 0.6578 currently hovers above the market price, suggesting a resistance level that could curb upward movements. An observed breakout from the upward channel around the 0.6575 level hints at bearish potential, particularly if a bearish engulfing pattern forms below this threshold.

In summary, the AUD/USD pair's current stance is cautiously bearish, with a recommended sell entry below 0.65619. Traders might target a take-profit level at 0.65256, while a stop loss at 0.65886 could mitigate potential losses. This outlook encapsulates a strategic approach to trading the AUD/USD, considering the prevailing technical indicators and market dynamics.

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