AUD/USD bearish on a close below 0.7860 – UOB

The outlook on the Aussie Dollar should shift to bearish from neutral on a daily close below 0.7860, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “The outsized drop in AUD last Friday came as big surprise. The sharp decline appears to be running ahead of itself even though a test of 0.7860 would not be surprising (before stabilization can be expected). On the upside, 0.7980 is expected to be strong enough to check any intraday recovery (0.7955 is already quite a strong level)”.

Next 1-3 weeks: “While the shift to a neutral stance last Friday (02 Feb, spot at 0.8040) was timely, the subsequent outsized decline of -1.51% was clearly not expected (the -1.51% decline is the biggest 1-day drop since May last year). Despite the vastly improved downward momentum, it is too early to expect the start of a bearish phase. Only a NY closing below 0.7860 would indicate that a move towards 0.7805/10 has started. The odds for such a move are not high for now but would continue to improve unless AUD can reclaim 0.8020 in the coming days. On a shorter-term note, 0.7980 is already quite a strong level”.