Failure to reclaim 0.6780/0.6850 could trigger another down leg – SocGen

The AUD/USD pair has been holding steady at around 0.6650. However, analysts at Société Générale predict that if the pair fails to surpass the resistance zone of 0.6780/0.6850, the decline is likely to persist. According to them, AUD/USD has experienced a steady decline since forming a Head and Shoulders pattern near the peak of last August at 0.7130/0.7170.

The neckline of the pattern at 0.6780/0.6850 is a short-term resistance zone. If the pair fails to overcome this resistance, the decline could extend towards 0.6550, which is the next potential support level. Furthermore, the analysts predict that below 0.6550, the pair may find support at 0.6400, the 76.4% retracement from last October and 0.6310.

The AUD/USD pair has been on a gradual decline since August 2019. The Australian dollar has faced several headwinds, including a recession in the manufacturing sector, declining consumer confidence, a slowdown in the Chinese economy, ongoing trade tensions between the US and China and geopolitical tensions in the Middle East.

The recent outbreak of COVID-19 in China has further dampened market sentiment, with some analysts predicting that it could negatively impact the Australian economy given its close trade ties with China. The Reserve Bank of Australia (RBA) has already revised its growth forecast for the country, with expectations that the Australian economy will grow at a slower pace than previously anticipated.

The RBA may have little room to manoeuvre, as it has already cut interest rates three times in 2019, bringing the official cash rate to a record low of 0.75%. However, analysts believe that further rate cuts may be necessary, particularly if the economic scenario worsens.

On the other hand, the US dollar has been a safe haven for investors amidst global uncertainties. The Federal Reserve has kept interest rates unchanged and has signalled that it may not make any further rate cuts in the near future. This has led to a strengthening of the greenback, making it a more attractive option for investors.

The ongoing trade tensions between the US and China have also provided support to the US dollar, as investors view it as a safer currency compared to its counterparts. However, if the US-China trade tensions were to ease, it could provide some support to the AUD/USD pair.

In addition, geopolitical tensions in the Middle East and Brexit uncertainties have also contributed to the volatility in the forex market. The outcome of the US presidential election in November could further impact market sentiment and forex trends, particularly if there is a change in the current administration’s policy towards China.

Overall, the AUD/USD pair faces several challenges, including weak economic data, trade tensions and global uncertainties. The RBA may need to take further action to stimulate the economy, while traders and investors may need to be cautious and vigilant amidst the ongoing developments in the global economy. It remains to be seen whether the pair will regain its momentum or whether the decline will persist.

In conclusion, while the AUD/USD pair may experience short-term fluctuations, its long-term outlook remains grim amidst several headwinds. The pair may find support at lower levels, but the upside potential is limited. Traders and investors should exercise caution and monitor the global economic scenario to make informed trading decisions.


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