Day one: potential AUD/USD trade

Chris Weston's potential trade idea this week: sell AUD/USD on a daily close below 0.9321. Stops and potential targets to be updated.

Source: Bloomberg

I continue to feel potential long AUD/NZD and USD/CAD trades are favourable, but this week I look at downside in AUD/USD. I am keen to wait until the technicals become more bearish.

On the hourly chart below there is strong horizontal support at 0.9329, while a multi-week head and shoulders pattern can be seen. A close below the neckline of the head and shoulders pattern at 0.9321 would potentially target 0.9160.

On the daily chart Bollinger bands have been working well of late, given the sideways move in the 20-day moving average. A downside break of the 20-day (now at 0.9396) could see the pair trade down to the lower Bollinger band at 0.9326 which could cause a turn lower in the moving average, which suggests AUD/USD could hug the lower Bollinger band if the trend turns lower.

A close (07:00 AEST using the New York close) below the July 3 low at 0.9329 could see the pair head down to strong horizontal support at 0.9200 area.

Fundamentally there is a raft of US data out that could really shape the path of all asset classes. On the US data front we get Q2 GDP (expected +2.9%), employment cost index (+0.5%), FOMC meeting and non-farm payrolls, which will include average hourly earnings and core private consumption expenditure.

Looking at positioning using the weekend Commitment of Traders (CoT) report, last week we saw a slight pullback in the level of net longs to 38,800 futures contracts, with gross shorts taking their holdings up a touch. The market is still holding a long bias, increasing the risk of downside, although positioning is hardly stretched.

Given the raft of key tier-one economic data releases and sideways trade on the daily chart, I am keen to wait for price to confirm a more bearish picture before taking potential short positions. I would wait until a daily close below 0.9321 is seen before holding a more confident short bias.

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