Technical Analysis: 8 August 2019

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
08 August 2019, 5:08 PM

AUD/USD – bearish breakout

The U.S. dollar’s relative strength, measured on a trade-weighted basis is rippling around the world, particularly as global central banks adopt easy-money policies that appear to be more accommodative than even the U.S. Federal Reserve, driving local currencies lower against the green buck.

The Aussie dollar has been trading in a downward trajectory since January 2018 with the selling pressure intensifying over the past three weeks.

The recent price action broke below key support of 0.6747 suggesting that lower price levels are likely to unfold over the long term.

The initial downside target is 0.6500 however this level is likely to be exceeded. In the short term the currency pair is oversold and a corrective rebound appears due. The initial upside price target is 0.6900. 

US 10 Year Bond Rate – heading lower 

The benchmark 10-year Treasury yield has been trading in a downward trajectory since November 2018 which was caused by the Fed’s sudden turn in its policy.

As the US-China trade tensions have escalated last week, the capital poured out of riskier assets and into the perceived safety of government bonds, driving yields lower.

With the Fed poised to cut rates further in 2019 the 10-year treasury yield is likely to re-visit the bottom of its long term trading range, which means a decline to 0.0132 in the coming months is highly likely.

The weekly and daily RSI readings have reached oversold territory suggesting that the yield could bounce to 0.019 in the short term, before resuming its downward trajectory.

Australian 10 Year Bond Rate – at all time low

After trading sideways throughout 2017 and 2018, in early 2019 the Australian 10-year bond rallied with the yield breaking below its key support of 0.0180.

The rally accelerated over the past four months with the yield hitting an all-time low of 0.0094 on August 7, 2019.

The weekly and daily RSI indicator remains in the bear market range, suggesting that lower yields are likely to unfold over the long term.

In the short term a corrective bounce to 0.0120 is likely to take place to unwind the oversold momentum conditions.

Spot Gold – bullish breakout 

The gold price has surged over the past two months, hitting a new 6-year high of US$1501 overnight.

Assets like gold are responding to signs of global economic weakness. Buying the U.S. dollar, bonds, gold and bitcoin as an alternative asset, are good bets if the environment worsens.

Bullish bets on the precious metal are accelerating amid increasing expectations that the Fed will continue to cut rates, which is an upbeat environment for bullion, even if the U.S. dollar continues to firm against its rivals.

The ten-year weekly chart (see below), which is very reliable in determining the long term trends, shows a decisive break above its key resistance of US$1374, suggesting that a new primary up trend is now in place.

After years of dominating the market, the bear has finally gone for its winter slumber and is likely to stay there for awhile. Now that the breakout has occurred our bullish conviction increases even further. After a prolonged consolidation, the first leg out of the trading range is usually impulsive, therefore we can reasonably expect a fast advance to US$1650 in the coming months.

The weekly RSI indicator has moved firmly into the bull market range, adding further confidence in the long term bullish outlook for the yellow metal.

In the short term the commodity is overbought and a pull back to unwind the overbought momentum conditions could be seen soon. 

More information

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Disclaimer: Analyst owns shares in: EFACustomAnalystPosn. The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.


 

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