18.02.202010:20 Forex Analysis & Reviews: Analysis and forecast of the dynamics of the AUD/USD pair based on the COT (Commitment of Traders) report (there is a high probability of the pair declining again)

AUD/USD pair:

The pair has remained under pressure since the beginning of this year due to expectations of a decline in the Chinese economy particularly due to the impact on the production activity of the coronavirus epidemic. Australian exports are largely dependent on demand for Australian iron ore in China, so the expectation of a slowdown in economic growth in the Middle Kingdom may cause the continuation of the soft monetary policy of the RBA, which, as shown by the minutes of the regulator's meeting published on Tuesday, was discussed at the meeting.

Moreover, the dynamics of the AUD futures, according to the COT (Commitments of Traders) reports provided by the Commodity Futures Trading Commission (CFTC) for the last week (Fig. 1), which ended 02/14, indicates that Large Traders have begun again to increase net speculative short positions, which amounted to -32,700 contracts against -27,500 a week earlier. The COT indicator also shows a local reversal of investor sentiment after a long period of consolidation. This attitude to the market situation is also supported by small investors (Small Traders), in contrast to hedgers (Commercial Hedgers), who always stand in the opposite direction.

The distribution of short and long positions, as well as the open interest in the AUD/USD pair as of 11/02 indicate a rollback of the price upwards, but it should be noted that with the number of long positions at 79,177 and short at 42,429, the overall dynamics of the charts reflecting long and short positions, still remains in favor of a prospective decline, which was then confirmed by the price movement of this pair by the end of the week. The data are presented in the table on the graph below (Fig. 2).

It is necessary to pay attention to the dynamics of the futures for the US dollar when assessing the prospects of the AUD/USD pair, which at the time of writing is above 99.00 points. Moreover, it has been increasing steadily for the second week. The COT report (Commitments of Traders) shows an increase in the number of contracts of large traders (Large Traders) for the purchase of the dollar by 19,479, and the dynamics of the indicator indicates an increase of already 20,000. (Fig. 3)

Thus, should we really expect the continuation of the decline of the AUD/USD pair in the currency market? So far, the COT (Commitments of Traders) reports on AUD and USD confirm such an opportunity, which, by the way, also fits in with the fundamental weakness of the "Australian" currency against the risks of a serious slowdown in the growth of the Chinese economy, which will negatively affect Australian exports to this country. This state of affairs may indeed force the RBA to continue its soft monetary rate. At the same time, COT reports indicate that large traders still bet on further weakening of the AUD, and their opinion is decisive in the market, and the distribution of positions of major players will be decisive.

Weekly forecast:

We believe that the decline in the pair will continue this week. We consider it possible to sell the pair after its decline below the level of 0.6685 with a local target of 0.6600. (pic 4)