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AUD/USD: Close above 20DMA hints dip buying activity

FXStreet (Bali) - AUD/USD managed to muster sizeable gains on Wednesday, up 1.26% for the day, with the formation of a bullish engulfing pattern closing above the 20-day EMA, a key technical development.

Despite the sharp declines in US stocks and 10-year Treasury yields, traders intending to go for a 'risk-off' play against the Aussie were left scratching their heads, as AUD held formidably well amid a crowded USD long market, which saw major liquidation of long-held positions after the latest COT report showed USD longs had reached record highs. Note, recent central bank-related bids have also helped to buoy AUD price action.

As explained on Oct 14 - Bulls in control ST - it was crucial for bulls to re-claim the 20-day EMA. I noted that "a daily break and close above this key indicator (already seen in EUR/USD daily market on Monday), should build confidence for buyers, although only a break through 0.89 will confirm a double bottom is in place." For intraday traders, taking the hourly chart as reference, price is now holding above key EMAs (20, 50, 100, 200), which bods well for dip buying interest towards the end of the week.

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