RSI Extends Downward Pattern Following RBA Assembly

Australian Greenback Speaking Factors

AUD/USD trades to a recent yearly low (0.7564) because the Reserve Financial institution of Australia (RBA) extends its quantitative easing (QE) program, and the Relative Power Index (RSI) continues to warn of a bigger correction within the trade charge because it extends the downward pattern established earlier this yr.

AUD/USD Outlook: RSI Extends Downward Pattern Following RBA Assembly

AUD/USD extends the decline from earlier this week because the RBA unveils plans to “buy an extra $100 billion of bonds issued by the Australian Authorities and states and territories when the present bond buy program is accomplished in mid April.”

It appears as if the RBA will retain the present course for financial coverage despite the fact that “GDP is now anticipated to return to its end-2019 stage by the center of this yr” because the central financial institution warns that “the economic system is anticipated to function with appreciable spare capability for a while to return.”

In flip, the RBA could make the most of its stability sheet all through 2021 as “the Board stays dedicated to sustaining extremely supportive financial situations till its objectives are achieved,” but it surely appears as if Governor Philip Lowe and Co. have little intentions of deploy extra unconventional instruments as “the restoration is anticipated to proceed, with the central state of affairs being for GDP to develop by 3½ per cent over each 2021 and 2022.”

Consequently, the pullback from the January excessive (0.7820) could become an exhaustion within the bullish pattern moderately than a change in AUD/USD habits as key market themes stay in place, and it stays to be seen if the current shift in retail place will spotlight an analogous dynamic because the crowding habits from 2020 resurfaces.

The IG Shopper Sentiment report reveals 49.41% of merchants are presently net-long AUD/USD, with the ratio of merchants brief to lengthy standing at 1.02 to 1. The variety of merchants net-long is 2.80% greater than yesterday and 11.57% greater from final week, whereas the variety of merchants net-short is 7.24% decrease than yesterday and 14.06% decrease from final week.

The decline in net-short place may very well be a perform of profit-taking habits as AUD/USD trades to a recent yearly low (0.7564), however the rise in net-long place has failed to stop a flip in retail sentiment as 51.20% of merchants had been net-long the pair through the earlier week.

With that stated, the shift in retail sentiment could proceed to accompany the decline in AUD/USD because the trade charge trades beneath the 50-Day SMA (0.7589) for the primary time since November, with the Relative Power Index (RSI) nonetheless highlighting the scope for an extra decline within the trade charge because the indicator extends the downward pattern established earlier this yr.

AUD/USD Charge Each day Chart

Supply: Buying and selling View

• Consider, the AUD/USD correction from the September excessive (0.7414) proved to be an exhaustion within the bullish pattern moderately than a change in habits because the trade charge traded to recent yearly highs all through December.
• On the identical time, developments in the Relative Power Index (RSI)confirmed the bullish momentum gathering tempo because the indicator pushed into overbought territory for the primary time since September, with the break above 70 accompanied by an extra appreciation in AUD/USD just like the habits seen within the first half of 2020.
• Nonetheless, a textbook RSI promote sign emerged following the failed try to check the March 2018 excessive (0.7916), with the oscillator nonetheless monitoring the downward pattern established earlier this yr.
• Failure to protect the opening vary for January has pushed AUD/USD to recent 2021 lows, with a break/shut beneath the Fibonacci overlap round 0.7560 (50% growth) to 0.7580 (61.8% growth) bringing the 0.7440 (23.6% growth) to 0.7480 (50% growth) area on the radar.
• Subsequent space of curiosity is available in round 0.7370 (38.2% growth) to 0.7390 (38.2% growth) adopted by the 0.7270 (23.6% growth) area.

— Written by David Tune, Forex Strategist

Observe me on Twitter at @DavidJSong