Dark clouds shroud outlook for AUD/USD

ALTHOUGH the Australian dollar (AUD) was deemed to be one of better performing G-10 currencies over the past month, this could be in jeopardy as dark clouds shroud the AUD/USD's outlook. With the recent manufacturing and service Purchasing Managers' Index (PMI) numbers tumbling amid Covid-19, it appears to be casting a shade towards Australia's economic recovery. Even though Australia is considering lifting some restrictions soon, it appears the winding down of restrictions could be very gradual, and the current economic slowdown could intensify. Aside from the fundamentals, technical indicators are also suggesting that downside pressure is emerging for the AUD/USD pair.

Firstly, the gap between the short-term moving average (50 EMA) and the long-term moving average (200 EMA) appears to be widening. This indicates that the bearish momentum is still strong. In addition, strong resistance is seen at the 50 EMA levels, where prices attempted to break above those levels for the past week, but failed. This affirms that the selling pressure is present, and hints towards more downside risk being on the horizon for the AUD/USD pair.

Secondly, the downtrend line which formed since the start of 2020, seems to be holding strong. Prices have tested the downtrend line on various occasions, and are currently still facing strong resistance at the current levels. Thus, should there be no successful breakout from the current bearish trend, it serves as a strong indication that further weakness could entail for the AUD/USD pair. In addition, using Fibonacci retracement drawn from the Jan 21, 2020 high at 0.705 to the March 19, 2020 low at 0.551, it is noted that prices are currently at the 50 per cent support levels. Should prices dip further from current levels, its immediate support will be at 0.610, the 38.2 per cent Fibonacci level, presenting a 4.04 per cent downside potential.