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Sep 23 - 01:55 PM

AUD/USD - COMMENT-After Fed, AUD/USD Faces Massive Short Squeeze Risk

By Christopher Romano  —  Sep 23 - 10:19 AM

A day after Federal Reserve policymakers and Fed Chair Jerome Powell alerted investors that bond buying tapering is coming soon nL1N2QN1LU risk sentiment remained upbeat, leaving AUD/USD shorts facing the risk of a massive squeeze.

AUD/USD traded below Wednesday's 0.72245 low in Asia trading but sales of the safe-haven dollar and yen along with equity and commodity rallies helped the aussie rally away from key support near 0.7220 and above the 10-day moving average and daily cloud base.

The price action should concern AUD/USD shorts as the latest CFTC report showed net-short AUD positions at record levels.
AUD/USD shorts should be concerned that the pair is rallying despite investors pulling forward expectations for the Fed's first rate hike EDU2 and the U.S. 10-year yield US10YT=RR is bumping up against the 200-DMA.

Should risk sentiment remain buoyant, AUD/USD's rally is likely to extend, which could force AUD shorts to cover positions.

Daily technicals highlight upside risks.
Daily RSI is rising after diverging on Thursday's low and a bullish engulfing candle is in place.

Significant resistance sits in the 0.7330/50 region.
A break above that zone is likely to trigger stop-loss buying.
A test of September's monthly high is then likely.
Should that high break the 200-DMA and July monthly high are targeted.

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Refinitiv IFR Research/Market Commentary


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