AUD/USD bears on top for the open

• AUD/USD bears push bulls onto the ropes.
• Risk-off supporting the bearish outlook for the open. 

AUD/USD ended the week on the back foot, falling into highly negative territory from a technical basis and hurt by investors running for cover from the spread of the Delta variant. 

Coronavirus has played a significant role in the recent risk-off environment for financial and commodity markets in recent weeks which has sunk the Australian dollar due to its ties to world growth sentiment.  

COVID spread weighing on market's risk appetite

On Friday, AUD/USD ended down 0.35% falling from a high of 0.7442 and fell to a low of 0.7392, (a fresh 2021 low), extending its monthly decline from the 0.78 area. 

Meanwhile, solid US data and a shift in interest rate expectations after the Federal Reserve flagged in June sooner-than-expected hikes in 2023 have put a floor under the greenback.

The dollar index DXY, which measures the greenback against a basket of six currencies, was ending 0.16% higher at 92.712. The index is up 0.6% for the week.

The gains came despite Fed Chair Jerome Powell reiterating on Thursday that rising inflation was likely to be transitory and that the US central bank would continue to support the economy.

For the open

It is a quiet week on the calendar, apart from what would be expected to be dovish minutes from the very dovish July Reserve Bank of Australia meeting. Therefore, external factors would be expected to be in play. 

Combining the risk-off mood pertaining to the spread of the delta variant from the weekend and the fact that AUD/USD failed to break above 0.7500 earlier this week, even when global sentiment appeared favourable, the bias is firmly bearish.

Moreover, yet another five-day lockdown in the state of Victoria was recently imposed and the latest headlines suggest it could be extended. 

Daniel Andrews, premier of Victoria, says the restrictions won’t go any longer than they need to but at this stage, he has no advice to shorten lockdown for any areas outside Melbourne either.

On the other hand, while the net-short positioning could leave the currency exposed to a short squeeze, leading the spot market to potentially rebound, the unattractive carry compared to, say, NZD, NOK or CAD, may make it a laggard in this regard. 

AUD/USD technical analysis

From a technical standpoint, however, selling into support is always a risky business.

From a longer-term perspective, the price is headed into a monthly and weekly structure as follows:

The monthly chart shows that the price is taking on a strong area of support near to 0.7380. 

If this area holds, there is a bullish bias in terms of an expected upside correction.

If it breaks below, bears could well be encouraged to test been lower for a sustained downside continuation. 

Weekly chart

The weekly chart offers a potential target area of the 0.7280s:

Daily chart

Meanwhile, on a daily basis, the price may need to test the prior low's resistance, 0.7430, before embarking on an onward downside trajectory. 

If the resistance fails, then a strong correction from weekly/monthly support would be expected for the meanwhile.