In a note to clients, Credit Suisse discusses if the recent move higher in AUD/USD telling us something important – i.e., a potential early warning signal of a reversal in the USD rally or Commodity sell-off (or both). Or, is this very much a consolidation/sideways ranging phase for AUDUSD, which will eventually be resolved to the downside, resulting in a “catch-up” trend.
“For AUDUSD itself, although we have seen the market rally over the past month, it still remains in the converging range that has dominated since mid-August, the top end of which is seen at .7336/.7383 – the October high, “triangle” trend resistance and the 38.2% retracement of the May/September sell-off.
It is only above .7383 that we would think a significant reversal has been established (and even then ideally quickly confirmed above .7440), opening the door to what may well be a sharp AUDUSD rally back to the 200-day average at .7470 initially, ahead of .7533 and eventually .7850/.7900,” CS notes.
“If such a reversal were to be established, we suspect this would herald a phase of corrective weakness for the USD, against both EUR and CHF.
While AUDUSD stays capped at .7383, the current strength can still just be viewed as a rally within a “triangle” range, with an eventual break below .7016 needed to resolve the range lower.
This would then not only mark a resumption of the core AUDUSD bear trend, but would also reinforce the existing bear trend for EURUSD, and bull trend for USDCHF,” CS argues.
In particular for EUR/USD, CS thinks that while capped beneath the 13-day average at 1.0638/63, the immediate risks can still lean lower.
“Below 1.0578 can aim at 1.0558 and through here is needed to turn the trend lower again for 1.0521 next. We allow for a bounce here, but expect follow through beneath it to test the 1.0458 low for the year.
Bigger picture, we look for weakness to extend to our long-held 1.0109/.9921 target zone,” CS projects.
This content has been provided under specific arrangement with eFXnews.