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Australian Dollar Sharp Decline Raises Concerns

Australian Dollar Decline

Australian Dollar faces a sharp decline; retail optimism persists. Traders watch support levels; concerns rise on AUD/USD outlook.

The Australian Dollar (AUD) is set for its most substantial weekly decline, approximately -2.2%, since mid-June, raising concerns among market participants. Retail traders, however, continue to display growing bullish sentiment, as indicated by the IG Client Sentiment (IGCS) data, which often serves as a contrarian indicator. This situation prompts the question: is the Aussie currency headed for further losses?

Australian Dollar Decline Raises Concerns

According to IGCS, around 85% of retail traders are net-long on AUD/USD. This overwhelming bias towards the upside suggests a potential further downside for the currency pair. Recent data reveals a 14.21% increase in upside bets compared to yesterday and a 5.76% rise from last week. These figures reinforce the bearish contrarian trading bias, signaling a possible downtrend continuation.

Technical Breakdown Raises Concerns

AUD/USD has broken below the 78.6% Fibonacci retracement level of 0.6382. While similar breaches occurred in recent weeks, this marks the first significant consecutive daily drop under this level. This breach exposes the immediate support level at the November 2022 low of 0.6272.

Despite the bearish momentum, there is a positive Relative Strength Index (RSI) divergence, indicating a potential slowdown in the downward movement. Such a scenario might precede a reversal, focusing on the 20- and 50-day moving averages as immediate resistance levels. However, these averages could sustain the broader bearish technical perspective, possibly leading to a revisit of the 2022 low at 0.6170.

Implications for Traders

The market remains tense as the Australian Dollar faces heightened bearish pressures and retail traders maintain bullish. Advisors recommend traders closely monitor ongoing developments, especially the price action near the 0.6272 immediate support level. Any sustained breach below this level could pave the way for further losses, raising concerns about the AUD/USD pair’s long-term outlook.

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