The Australian Dollar has now fallen for the seventh consecutive trading day, matching an occurrence that has only happened 8 times in the past 10 years of forex trading. In fact, the AUDUSD has fallen for 13 of its past 14 daily trading sessions—an overextended move by any measure. In an earlier DailyFX report, we argued that Australian dollar outlook would very much depend on commodity prices. Massive declines in the price of gold and other key commodities contracts has undoubtedly contributed to the Aussie’s slide, but a recent bounce in gold and crude prices has produced a similar pullback in the AUDUSD. Through the near term, long-term probabilities show that the Australian Dollar is unlikely to continue its sharp losing streak; instead, we may see a short-term correction before any continuation in the Aussie downtrend.
Based on the past 10 years of forex trading, our short-term Australian dollar outlook remains bullish. Longer term, fundamental outlook for the Australian dollar shows risks for further declines. Yet a look at AUDUSD forex positioning nonetheless shows potential for a shorter-term bounce, as a signal to sell the AUDUSD has steadily been losing strength.
Forex Positioning in the Australian Dollar
According to our most recent look at FXCM Speculative Sentiment Index data, the number of retail traders long the AUDUSD has fallen significantly through the past days of trading. The ratio of long to short positions in the AUDUSD now stands at 1.37, as only 58 percent of traders are long . This pales in comparison to just several weeks ago, when the ratio of long to short orders was over 2:1. Taking a closer look at our positioning data, long positions have fallen 20 percent in a single day, while short positions have actually gained 7.4 percent through the same period.
Given that the SSI is a contrarian signal, the fact that “the crowd” is now growing increasingly bearish the AUDUSD gives us signal that we may in fact see a short-term turnaround. Our longer-term bias remains bearish, but we look for the Australian dollar to recover part of its losses through near-term forex trading.
[B]Written by David Rodríguez, Quantitative Analyst for DailyFX.com
We always want to hear your feedback on new DailyFX articles. Want more articles like this? Less? What do you want to see? Send e-mails to [/B][B][email protected][/B] .
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.