Australia has experienced a world of hurt and felt the brunt of the developments in China which has added further downside pressures on the Australian economy. Even before the sharp declines in China, the sentiment was already bearish because of the steady decline in commodities. China’s deceleration amalgamated with a further decline in commodities and has reinforced a fresh serving of selling pressure that has seen the AUD further decline. Australia is well-known for being one of the most dependent economies on China trade, with over 35% of its exports going to China. Any concerns over the health of China will continue to weaken the sentiment towards Australia.
Australia is currently treading on this ice and it may not be a surprise if GDP estimates for Q3 fail to meet expectations. This would likely encourage the RBA to cut interest rates further as a tool to induce domestic economic stability within the economy. RBA Governor Stevens has recently implied that he sees signs on growth in the domestic economy, but this is not enough and more is needed. Recent construction and retail sales data have come in above expectations, so there are signs that the lower borrowing rates are encouraging domestic spending and the central bank might want to encourage this further.
The AUDUSD remains fundamentally and technically bearish. Events of Monday caused AUD weakness as the Shanghai composite indexed declined 7.6%. Prices dropped to the lows of 0.7040 before making a technical correction back to the upside. With the candlesticks currently trading below the 20 SMA and monthly pivot, it may be best to observe a breakdown below the 0.7100 regions or a secondary correction back above the 0.7200 level. The trend defining level for us to keep bearish on the AUDUSD will be the previous lower high of 0.7400. The current decline on Gold may act as an attribute which may ripple back to the AUDUSD in aiding the breakdown below the 0.7100 level.
AUDJPY illustrated to market participants how an accelerated decline to the downside should look like. As the AUD weakened due to China, the Yen appreciated heavily as it was viewed as a safe haven instrument when the risk on environment was confirmed. Prices with the AUDJPY decline to the lows just above 82.0, levels not seen since 2011. This pair is heavily bearish and it may be best to take advantage of a correction below 88.0 or a breakdown below the 84.0 level. Almost all leading and lagging indicators on the daily timeframe suggest that bears still have more steam for a further move down. Drawing the Fibonacci from the highs around 92.00, the 61.8% Fibonacci level resides around the 88.0 regions which further reinforce how relevant that level is. As of now the trend-defining level for the AUDJPY to remain bearish on the daily timeframe will be 90.0.
Weakness dished from the AUD fused with EUR strength has sent the EURAUD to highs reaching above 1.65. With a move that has stretched over 1000 pips to the upside, bulls are in full force. Prices reside above the daily 20 SMA and the MACD trades to the upside. Drawing a Fibonacci from the previous higher lows of 1.5000 to the 1.6500 level, the 50% retracement level of 1.5800 looks like a nice correctional region. If prices do instead decide to trade to the upside, a strong break above 1.6200 may confirm a further incline to the previous high of 1.6500. Below the 1.5600 level will suggest a loss of bullish momentum.
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