RSI Flirts with Overbought Zone Forward of Australia CPI

Australian Greenback Speaking Factors

AUD/USD trades close to the 2020 excessive (0.7183) forward of the replace to Australia’s Client Worth Index (CPI), which is anticipated to point out the headline studying for inflation contracting for the primary time since 1998, however present market situations might maintain the change price afloat because the crowding habits within the US Greenback persists.

AUD/USD Outlook: RSI Flirts with Overbought Zone Forward of Australia CPI

AUD/USD clears the sequence of decrease highs and lows from the earlier week because the US Greenback weakens in opposition to all of its main counterparts, and it stays to be seen if the replace to Australia’s CPI will affect the change price because the headline studying for inflation is anticipated to slide to -0.4% from 2.2% each year within the first quarter of 2020.

The sharp slowdown in worth progress might do little to change the course for financial coverage because the Reserve Financial institution of Australia (RBA) insists that the financial shock from COVID-19 “had been much less extreme than earlier anticipated,” and it appears as if the central financial institution will follow the sidelines on the subsequent assembly on August Four as “members agreed that there was no want to regulate the package deal of measures in Australia within the present surroundings.”

In flip, the RBA might merely reiterate its pledge to “not enhance the money price goal till progress is made in direction of full employment,” and Governor Philip Lowe and Co. might retain the present coverage all through the rest of the yr as “the Financial institution had not bought authorities bonds for a while.”

Wanting forward, the RBA might steadily alter the ahead steering over the approaching months as Treasurer Josh Frydenberg extends fiscal stimulus packages just like the Jobkeeper Cost for six-months, and the Australian Greenback might proceed to outperform its US counterpart if the central financial institution prepares to take away the yield goal later this yr.

Till then, the crowding habits within the US Greenback stays in focus as the DXY index continues to trace the downward pattern from March, whereas the IG Shopper Sentiment report reveals retail merchants have been net-short AUD/USD since April.

The most recent replace reveals 41.28% of merchants are net-long AUD/USD, with the ratio of merchants quick to lengthy at 1.42 to 1. The variety of merchants net-long is 19.67% larger than yesterday and 26.03% larger from final week, whereas the variety of merchants net-short is 2.53% decrease than yesterday and 19.11% decrease from final week.

The rise in net-long curiosity signifies retail merchants are gearing up for an additional advance in AUD/USD because the change price clears the June excessive (0.7064), whereas the decline in net-short positions suggests stop-loss orders are getting triggered as Aussie Greenback trades to recent yearly highs.

With that mentioned, present market situations might maintain AUD/USD afloat because the crowding habits within the US Greenback persists, and the Relative Power Index (RSI) might provide a bullish sign because the indicator flirts with overbought territory.

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AUD/USD Fee Day by day Chart

Supply: Buying and selling View

• Have in mind, the advance from the yearly low (0.5506) gathered tempo as AUD/USD broke out of the April vary, with the change price clearing the January excessive (0.7016) in June because the Relative Power Index (RSI) pushed into overbought territory.
• AUD/USD managed to clear the June excessive (0.7064) regardless that the RSI did not retain the upward pattern from earlier this yr, and the indicator might provide a bullish sign because it flirts with overbought territory.
• A break above 70 within the RSI is prone to be accompanied by an additional advance in AUD/USD like the worth motion seen in June, however want a break/shut above the 0.7180 (61.8% retracement) to convey the 2019 excessive (0.7295) on the radar.
• Subsequent space of curiosity is available in round 0.7370 (38.2% enlargement) adopted by the Fibonacci overlap round 0.7560 (50% enlargement) to 0.7570 (78.6% retracement).
• Nonetheless, the RSI might proceed to diverge with worth if it marks one other failed try and push into overbought territory, with lack of momentum to carry above the 0.7090 (78.6% retracement) to 0.7140 (23.6% retracement) area bringing the 0.6970 (23.6% enlargement) to 0.6980 (23.6% enlargement) space again on the radar.

— Written by David Track, Forex Strategist

Observe me on Twitter at @DavidJSong