Price has room to fall to the 0.6800 area.

My previous signal last Monday produced a profitable long trade from the bullish rejection of the support level at 0.6882, but it barely gave the minimum 20 pips of profit so would have broken even in practise.

Today’s AUD/USD Signals

Risk 0.75%

Trades must be entered prior to 5pm Tokyo time Tuesday.

Short Trade Idea

Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.6884 or 0.6953.

• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.6797 or 0.6784.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote in my previous forecast on 22^nd August that although the AUD/USD currency pair was rising, the price would probably turn bearish again later, not being able to get established above 0.6964.

This was a relatively good call as the dominant price movement for the day was downwards and the price never even reached 0.6964.

The Aussie stood out last week as the only major currency which ended the week slightly higher than the strong US Dollar. However, this currency pair fell sharply in favour of the Dollar just like every other pair did Friday after Powell’s hawkish speech at Jackson Hole strongly boosted the greenback, which has continued to advance since this week’s open. Interestingly, the Aussie has falled during Monday’s Asian session just as strongly as most other currencies, which suggests that any residual strength in the Aussie is being wiped out.

We have bearish momentum and this may slow down or even reverse, however the odds have to be that nothing will change sentiment and we will see further gains by the US Dollar later. The price here has room to fall, with no obvious key support levels until the round number at 0.6800.

I see a short trade from a bearish reversal following a bullish retracement to at least 0.6875 as potentially the most attractive trade setup we might see here today.

There is nothing of high importance due today regarding either the AUD or the USD.

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EUR/USD

The EUR/USD has gone back and forth during the week, as we continue to hang around the parity level. At this point, it looks like we are taking a bit of a pause, but I think have to look at this through the prism of “fading short-term rallies” going forward. The market has gotten down to this level rather quickly, but now Jerome Powell has reiterated the hawkish attitude of the Federal Reserve, it’s likely that we will continue to see the US dollar reign supreme. I like fading rallies, especially near the 1.03 level if we get all the way up there.

GBP/USD

The GBP/USD initially tried to rally during the trading week but gave back gains as we continue to see a lot of negativity when it comes to the British pound, as the Bank of England has already stated that the United Kingdom is going into a recession. Because of this, the market is likely to continue fading rallies, and maybe even worse off than the Euro. If we were to break above the 1.20 level, then you might be able to make an argument for something else. Until then, this looks very bearish to me.

USD/JPY

The USD/JPY has pulled back slightly to kick off the week but then ended up rallying yet again. It looks as if we are eventually going to try to break above the recent highs, perhaps breaking through the ¥140 level. The ¥132 level underneath continues to be significant support, so I do like the idea of any pullback being bought into. If we break down below the ¥132 level, then we start to have other questions asked at that point. If the Bank of Japan continues to fight rising interest rates, this more likely than not will continue to be a “one-way trade.”

AUD/USD

The AUD/USD initially tried to rally during the week but gave back a lot of the gains at the 0.70 level. The market has seen a lot of volatility, and a lot of resistance at the 0.70 level. If we can break above the 0.70 level, then it is possible that we could go looking to the 50 Week EMA. However, it looks more likely than not that we are going to threaten the lows again after the Federal Reserve has spoken.

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The pair will likely resume the bearish trend as sellers target the next key psychological level at 0.6800.

Bearish view

• Sell the AUD/USD pair and set a take-profit at 0.6800.
• Add a stop-loss at 0.7000.
• Timeline: 1 day.

Bullish view

• Set a buy-stop at 0.6965 and a take-profit at 0.7048.
• Add a stop-loss at 0.6880.

The AUD/USD price rebounded slightly as the recent US dollar rally took a breather. It rose to a high of 0.6963, which was the highest point since August 17. That price was about 1.17% from its lowest level this week.

US dollar rally takes a breather

The Australian dollar has pulled back recently amid a sustained US dollar comeback. The closely watched dollar index managed to move from this month’s low of $104.3 to over $109.30. This rally accelerated after the Federal Reserve published the minutes of the last meeting. These minutes showed that the bank was committed to continuing with the hiking process.

However, data published recently could see the bank reducing the pace of tightening. For example, on Tuesday, numbers released by S&P Global showed that the services PMI declined to 44.1 in August as demand waned and cost of doing business rose. A PMI reading of 50 and below is usually a sign that an industry is contracting.

Meanwhile, new home sales declined by 12.6% in July to 511k. This decline was worse than the median estimate of 575k. These numbers, together with the pending and existing home sales, imply that the housing sector is cooling down.

The AUD/USD price has also been in a downward trend because of the weakening Chinese economy. On Monday, the country’s central bank decided to slash interest rates in a bid to stimulate the economy. It slashed the five-year prime mortgage rate to 4.3%.

The deteriorating Chinese economy will have a negative impact on Australia. For one, analysts expect that iron ore prices will drop by half by next year because of the deteriorating housing sector in China. Analysts also expect that the Chinese economy will have a slower growth than the 5.5% that the government expects.

AUD/USD forecast

The AUD/USD slipped to a low of 0.6865 on Tuesday and then bounced back slightly after the weak US data. This price was an important one since it was the lowest point since August 5.

It has struggled moving below the support level several times since Monday. The pair is slightly above the 38.2% Fibonacci Retracement level while the MACD has tilted upwards. The pair will likely resume the bearish trend as sellers target the next key psychological level at 0.6800.

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Looking for opportunities to fit short-term rallies, 

• The AUD/USD pair has dropped during the Friday session to test the 0.69 level.
• This is a market that continues to be highly sensitive to the overall risk appetite around the world, which of course is waning.
• Pay close attention to is the fact that the Australian dollar is highly sensitive to the Chinese mainland economy, so therefore you need to keep in mind that everything that’s going on in China has a major influence here.
• The Chinese economy seems to be slowing down, and there are a lot of concerns about what’s going on over there.

If we break down below the lows of the trading session on Friday, I think it opens up the door to a move down to the 0.67 level. The 0.67 level has been important a couple of times, going back several years. If we break down below that level, then it opens up the possibility of a move to much lower levels. In that situation, I would fully anticipate that the market will go looking to reach the 0.65 level.

Change in Trend

On the alternate scenario, if we were to break above the 50 Day EMA, something that I don’t see happening very easily, the 0.70 level should be resistance, followed by the 200 Day EMA. The 200 Day EMA being broken to the upside could be thought of as a change in trend, but I would not hold my breath for that happening easily. We would need to see the US dollar loses strength across the board, although it must be noted that the Australian dollar has been a bit of an outlier when it comes to dealing with the greenback, as so many of the other currencies have done far worse than the Aussie.

I do think that this remains a “fade the rally” type of market, but that’s the same thing that you can say about most major currencies against the US dollar. As yields will almost certainly rise next week due to central bankers speaking at the Jackson Hole Symposium, I think this continues to put downward pressure on this market as the US dollar will remain King when money tightening policy continues to be the norm for most central banks. Because of this, I’m looking for opportunities to fit short-term rallies, but if we do break down below the Friday candlestick I would not hesitate to start shorting either.

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If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.

The AUD/USD pair has fallen rather hard during the early hours on Wednesday, as the Royal Bank of New Zealand decided to raise interest rates by another 50 basis points. This move was in sympathy for the Kiwi dollar, slamming the Aussie down into the 50-Day EMA.

Later in the day, we had the FOMC Meeting Minutes, which traders interpreted as showing signs of potential dovishness. Because of this, we did get a little bit of a lift, but it is probably worth noting that we are still very much in a consolidation area that will probably cause major problems. With that in mind, I think this is a market that remains choppy, and therefore probably one that you need to focus on short-term charts. That 0.70 level above is the beginning of relatively significant resistance, which could extend all the way to the 200 Day EMA, which is currently at the 0.7150 level. Keep in mind that the Australian dollar is highly levered to the Chinese economy.

Will AUD Return to a Bullish Trend?

• If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.
• It is likely that we would see the Aussie drop back down to the 0.67 level, an area that has been important previously.
• Not only did we bounce from there recently, but it’s also longer-term support and resistance area, and therefore it does make a certain amount of sense that we would struggle in that region.

If we do break down below the 0.67 level, it opens up a move down to the 0.65 level, and then possibly even lower than that. It should be noted that this level has been important going back several years, so it should not be a surprise that we had bounced from there. Furthermore, if we were to break down below that level, it would be a severe breach of support, so it could open a big flush lower. On the upside, if we were to take out the 200 Day EMA going forward, that would obviously be bullish, and would technically make the Australian dollar back in a bullish trend again. I don’t see that happening, but it’s something that you need to be aware of.

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More bearish below 0.7063.

My previous signal on 10^th August was not triggered as there was no bearish price action when the price first reached the resistance levels which I had identified.

Today’s AUD/USD Signals

Risk 0.75%

Trades must be entered before 5pm Tokyo time Tuesday.

• Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7141.
• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.7063, 0.7010, or 0.6951.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote in my previous forecast on 10^th August that the AUD/USD currency pair was moving within a new bearish price channel. I saw the upper trend line as quite confluent with a key resistance level which itself was confluent with a major round number at 0.7000.

I saw a short trade as the most likely set-up from 0.7000, but I was completely wrong: the lower than expected US inflation data sent risk sentiment soaring and the price of this currency pair rising strongly enough to easily break out of the bearish price channel and well beyond it.

We saw the price of this currency pair continue to rise for a while on the improved risk appetite, with the Australian Dollar acting as a barometer of risk sentiment. However, the resistance level at 0.7141 has been too strong for the price to exceed, and it has produced a bearish consolidation. We now see the price start to break down below the former support level at 0.7085 and begin to threaten the next support level at 0.7063.

If the price can make two consecutive lower hourly closes below 0.7063, that could be a good short trade entry signal, as the price would then have a lot of room to fall before reaching a support level – the next level is not until 0.7010.

There is quite a lot of activity in this currency pair right now, so it is not a bad time to be trading it. However, bear in mind that as today is a Monday, price movement might be a bit limited.

I would not take any long trades here today except from a bullish bounce at 0.7010 – if such a movement also rejected the round number at 0.7000, that would be even better.

Regarding the AUD, the Reserve Bank of Australia will release its Monetary Policy Meeting Minutes at 2:30am London time. There is nothing of high importance scheduled today concerning the USD.

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Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of August 15, 2022 here.

The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.

So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get my weekly analysis below.

Fundamental Analysis & Market Sentiment

I wrote in my previous piece on 7^th July that the best trades for the week were likely to be:

• Looking for short-term short trades in the EUR/USD currency pair, which probably would not have worked well if attempted.
• Trying to exploit the pivotal point in the S&P 500 Index at 4172 if it was reached. This could have worked well by going long on Wednesday’s open above that level, which would have netted a profit of 2.10% over the rest of the week.

The news is currently dominated by the lower-than-expected annualized US inflation rate, which was released last Wednesday, showing there was no month-on-month inflation and that the headline rate has fallen from 9.1% to 8.5%. These data suggest that US inflation may have peaked, which would reduce hawkish pressures on the Fed. While a rate hike of 0.75% is still widely expected to be executed at the Fed’s next meeting, the lower CPI had the effect of weakening the Dollar and boosting riskier assets such as stocks and other currencies such as the commodity currencies.

The risk-on rally that had already been showing signs of emerging came into full bloom after the release of the US CPI data, and the week ended with the S&P 500 Index having recovered more than half its losses incurred during the calendar year of 2022.

The outlook regarding risk appetite is obviously more bullish now. The US stock market is still in a bear market, but rose again last week, although the US yield curve remains inverted. The US has seen two successive quarters of GDP contraction but is not officially in a recession. If the US is in a recession, the slowdown is very patchy so far.

To recap there were a few other important economic data releases last week. The results were as follows:

1. US Purchasing Power Index data – a month-on-month decrease of 0.5% was recorded compared to an expected increase of 0.2%. This boosted the claim that US inflation has already peaked.

2. UK GDP data: a month-on-month contraction of only 0.6% was recorded when a much heavier contraction of 1.2% had been widely expected. The leaves the quarterly contraction at only 0.1% against the expected 0.2%. However, it is widely expected that the British economic climate will continue to deteriorate over the coming months, reinforced by the Bank of England’s recent pessimistic forecast.

3. US UoM Consumer Sentiment data: consumers were more bullish than expected.

The Forex market saw a decline by the US Dollar last week. The decline was broad but especially strong against the commodity currencies, especially the Australian and New Zealand Dollars.

Rates of coronavirus infection globally dropped last week for the fourth consecutive week. The most significant growths in new confirmed coronavirus cases overall right now are happening in Barbados, Chile, Mongolia, Serbia, Tonga, and Trinidad.

The Week Ahead: 15^th August – 19^th August 2022

The coming week in the markets is likely to show a similar or lower level of volatility to last week, as the data releases due this week are light and unlikely to contain enough to news to strongly move the entire market. Releases due are, in order of likely importance:

1. US FOMC Meeting Minutes

2. UK CPI data

3. Canadian CPI data

4. Reserve Bank of New Zealand Official Cash Rate, Rate Statement, and Monetary Policy Statement

5. Australian Monetary Policy Meeting Minutes

6. US Retail Sales data

7. Australian Unemployment data

It is a public holiday in France and Italy on Monday 15^th August.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a bearish candlestick which closed lower, against the long-term trend, which is bullish. The overall picture technically still looks quite bullish however, as the key support level just below the 105.00 handle is clearly holding, with the recent weekly candlestick showing a long lower wick.

It will probably be a good idea to not trade the US Dollar short over the coming week until we get a daily close below 104.92 here. This is a very powerful, long-term bullish trend in the most important currency in the Forex market, and it remains likely to reassert itself despite an increasing feeling among some analysts that US inflation may have peaked.

US Dollar Index Weekly Chart

AUD/USD

Last week saw this currency pair print a large, bullish engulfing candlestick. The Australian Dollar was one of last week’s big winners as we saw risk appetite really bounce back after that lower US CPI print. The Aussie for several years now has acted as a key risk-on barometer.

Despite the strength of last week’s bullish price movement, it is far from clear what will happen next here, as the price is in area which has been quite congested recently. We also see a weak but long-term bearish trend in this currency pair which is still technically valid.

If the US Dollar Index gets established below key support this week, we might well see a further rise in price here.

AUD/USD Weekly Chart

S&P 500 Index

The S&P 500 Index is technically in a bear market, but rose last week for the fourth consecutive week, by quite a healthy amount. The price closed the week right on the top of its range at a new 3-month high. The S&P 500 Index has now recovered more than half of the total loss it suffered during the calendar year of 2022 so far, breaking up above the 50% Fibonacci retracement level.

Another bullish sign is that the resistance level which had been printed at 4172, was easily broken to the upside.

It is also useful to note that while the NASDAQ 100 Index has also been rising firmly, the bullish momentum is greater in the wider market than in the tech market, making the S&P 500 Index a superior vehicle to trade this advance.

Further upside is likely over the coming week in the absence of any unexpectedly bad inflation news from the FOMC Meeting Minutes or UK or Canada CPI data.

S&P 500 Index Weekly Chart

Bottom Line

I see the best opportunities in the financial markets this week as likely to be in looking for short-term long trades in the S&P 500 Index whenever short-term momentum turns strongly bullish during normal market hours.

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Start the week of August 15, 2022 with our Forex forecast focusing on major currency pairs here. 

CAD/JPY

The Canadian dollar has stabilized against the Japanese yen over the last couple of weeks, essentially going nowhere. If the CAD/JPY currency pair can break above the highs of the last week, it’s very likely that the Canadian dollar will drive toward the ¥108 level. On the other hand, if we do pull back from here, I suspect that there is going to be a significant amount of support near the ¥102 level.

The Bank of Japan continues to buy “unlimited bonds”, which is the same thing as printing currency. If crude oil starts to recover again, this could be one of the best FX-related plays out there.

USD/JPY

The US dollar fell a bit against the Japanese yen during trading last week, showing signs of negativity. However, there is also a significant amount of support near the ¥132.50 level, and we have recovered from there. It’s very likely that the USD/JPY currency pair will continue to see this market go higher over the longer term, but we may have a bit of sideways action to deal with between now and then. After all, we need to understand that the market has been a bit overdone for a while, so I think we are simply working off the froth right now.

AUD/USD

The AUD/USD currency pair shot higher last week, showing signs of life again. However, this is the one standout against the US dollar that I see right now, so I don’t necessarily trust this rally. The 0.7 to a level above should offer a bit of resistance, so I would be cautious about going long of the Australian dollar here. It’s probably more likely than not going to see some negativity, maybe later in the week.

EUR/USD

The EUR/USD currency pair tried to rally significantly but found the 1.04 level a bit too much to get beyond. Because of this, it looks like we will continue to see a “fade the rally” type of market in the euro which is not a huge surprise considering all of the economic danger that the EU currently faces. The US dollar is by far the strongest currency over the longer term, and I think the euro is going to remain a punching bag. If we see any signs of strength this coming week, I will be looking for the first signs of exhaustion to start shorting.

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Resistance level at 0.7000 handle looks pivotal.

My previous signal on 2^nd August was not triggered as there was no bullish price action when the price first reached the support level I had identified at 0.6913.

Today’s AUD/USD Signals

Risk 0.75%

Trades may only be taken prior to 5pm Tokyo time Thursday.

• Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.6999 or 0.7063.
• Put the stop loss 1 pip above the local swing high.
• Adjust the stop loss to break even once the trade is 20 pips in profit.
• Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

Long Trade Ideas

• Long entry following a bullish price action reversal on the H1 time frame immediately upon the next touch of 0.6878 or 0.6797.
• Put the stop loss 1 pip below the local swing low.
• Adjust the stop loss to break even once the trade is 20 pips in profit.
• Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

AUD/USD Analysis

I wrote in my previous forecast on 2^nd August that the AUD/USD currency pair was showing a mixed technical picture: a medium-term symetrical bullish price channel, but choppy and is bearish price action over the short-term.

I thought the best approach would be hoping for the price to continue falling to the support level at 0.6913, and to enter a long trade if there is a firm bullish bounce there.

This did not pay off but it would not have got anyone into trouble either.

The technical picture today is somewhat different. The price chart below shows that the flow of the price has moved from being contained within a bullish price channel into a new bearish price channel. What is especially interesting about this channel is that the upper trend line is quite confluent with a key resistance level which itself is confluent with a major round number at 0.7000. It is clear that a short from a bearish reversal at 0.7000 could be an interesting trade, especially as the price has a lot of room to fall, with no key support until 0.6878 is reached.

The major event of the month these days is the US inflation data due today, it is quite likely the release will trigger a meaningful spike in the price, so scalpers might find some pips fading these spikes at key levels if any set up. I will repeat, a short trade at 0.7000 looks potentially very interesting.

Regarding the USD, there will be a release of US CPI data at 1:30pm London time. There is nothing of high importance scheduled today concerning the AUD.

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Get our trading strategies with our monthly & weekly forecast of currency pairs worth watching using support & resistance for the week of August 8, 2022.

This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Currency Price Changes and Interest Rates

Monthly Forecast August 2022

For the month of July, I forecasted that the EUR/USD currency pair and the GBP/USD currency pair would both decline in value. The result was nicely profitable:

Monthly Forex Forecast Performance

For the month of August, I forecast that the EUR/USD currency pair will decline in value.

Weekly Forecast 7^th August 2022

I make no weekly forecast as last week saw no major counter-trend price movements over the week.

The Forex market saw a low level of directional volatility last week, with only 11% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to increase over this coming week as there will be a release of very crucial US CPI data on Wednesday. However, it is worth noting that we are well into the month of August, which typically sees low levels and volatility and activity in the Forex market anway.

Last week was dominated by relative strength in the US Dollar, and relative weakness in the Japanese Yen.

You can trade my forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.

Key Support and Resistance Levels

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