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Andy’s Technical Take Week of November 4th 2019

The economic calendar was full of crucial events for the financial markets this past week. FOMC, Bank of Canada and Bank of Japan were driving the markets from the monetary policy side of things. Data wise, the US Non Farm Payrolls, GDP and PCE Reports as well as EU CPI, Employment and Chinese PMI reports were playing on the macroeconomic environment. It was understood going into the week that the US dollar would play the major violin in the orchestra.

When all was said and done, the greenback failed to hold previous week’s gains. The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies declined by -0.72%, closing the trading week at the lowest level in 13 weeks. The only loser among majors was the Loonie as the Bank of Canada was too dovish to keep the bearish momentum of USD/CAD (+0.63%).

The rest of the G10 currencies gained strength. The Aussie overperformed the the rest of the FX market, adding +1.34% to the exchange rate versus the US dollar on the back of a better than expected economic outlook and the rising price of Gold. Gold continued higher amid sliding US 10-year Treasury yields, which dropped -4.3% after the Fed’s quarter point rate cut. Based on all this activity, I decided to assess the potential of AUD/USD to reverse the long-term downtrend, as well as highlight possible resistance on that path.

According to the weekly chart below, AUD/USD is in the corrective phase of the long-term bear market started at the end of January when the pair peaked at 0.81100. Since then, the Aussie lost almost 1200 pips (four-digit quotes) or 14.74%, counting the recent weekly close rate (0.69137). The local bottom was found at 0.66775, so the pair had already recovered more than 240 pips or 3.64% counting from the lowest rate on the chart. This past week’s performance allowed AUD/USD to close the week above EMA21 and test but not breach EMA34 resistance (0.69238 currently). The green curve held the bullish attempts to reverse the downtrend five times this year. So before even mentioning a firm reversal, the bulls have to overcome that resistance with the weekly close rate.

The rest of the technicals are in favour of the bullish continuation. The MACD histogram is in the green and rising, both lines are headed toward the zero line after performing the bullish crossover three weeks ago. The 13-weeks RSI breached the 50% threshold for the first time since mid-July, promising further buying pressure in the near term. The nearest target for the bulls is the descending EMA55 curve, which currently comes slightly above the psychological round-figure mark of 0.70000.

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Below is another version of the weekly chart setup. What the bulls achieved last week was a breakout above Ichimoku Base Line resistance (0.68765), which hasn’t happened in the six months. That breakout suggests further upside development or a deeper bullish retracement towards the bottom of the cloud, which comes in the range of 0.70452/714. It’s reasonable to see this occurring within the next two weeks. Thus, I would recommend taking profits at around that range for those traders who are currently holding long positions.

There is a concern for the bulls that the Average Directional Index with a 13-week period has a negative surplus despite the bullish action. Although the momentum is quite strong and the main line is above the threshold, that could act as a bearish divergence for AUD/USD. However, Stochastic RSI is headed towards the overbought territory with pretty much room to go north before reaching extreme values. Both lines are in the right order to proceed with the bullish recovery which favors longs.

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The daily chart below is much brighter for the bulls and gives them reason for confidence. The daily close rate breached the upper band of the Ichimoku Cloud, the leading span performed the bullish cross, ADX is positive and the momentum is strong. The 21-day RSI is at the highest level recently with the confirmed sequence of higher lows. A pullback to the breached resistance (now support) at 0.68789 has already occurred (last Thursday), so the bulls have little reason to delay further upside continuation and the road to the recent top at 0.70764 is open.

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This post is contributed by MyFxLab. MyFXLab provides daily technical analysis written by professional traders. The site was founded by former Goldman Sachs FX traders and executives from some of the world’s largest brokers.

To view more premiere technical content and become a member, visit www.myfxlab.com

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