In the previous review we observed that the bearish trend from 2018 might be consolidating. The AUD/USD was at a crucial region. If a clean decisive break above 0.7050 happened, it might encourage bullish momentum, placing the price action back to the region of 0.7 to 0.72.
A failure of the AUD/USD to breach 0.7050 would probably invite bearish pressure, opening up the 0.68 to 0.7 region.
Technical Analysis
Looking at the AUD/USD weekly chart above, we observe a failure of the currency pair to gain a foothold above 0.7050. As expected, the bearish pressure reemerged, sending the price action down to the 0.68 – 0.79 region.
If the bearish momentum continues, it is likely to test the lower bollinger band followed by 0.68.
A bullish recovery will need to overcome the strong support turned resistance at 0.7. The middle bollinger band is also at the region, adding to the resistance.
RBA Dovish Comments
The RBA Governor Lowe was reported to comment that regardless if further interest rate cuts are required from the bank, borrowing costs face a protracted period of time at present or lower levels. It was also mentioned that if the growth in demand is not enough, the RBA is prepared to give additional support by adopting a further easing of the monetary policy. Traders usually prefer an asset with higher interest rate. The speculation of further rate cuts or quantitative easing probably increased negative sentiment for the Australian dollar.
US Economic Data Delights
Towards the end of the week, the US reported a better than expected Core Durable Goods Orders and advance GDP figures.
Core Durable Goods Orders was reported to be 1.2% instead of 0.2%. Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.
Advanced GDP came in at 2.1% instead of 1.8%. Gross domestic product is a measure of the monetary market value of all the goods and services produced. As an overall measure of economic activity and health, it has considerable influence on the price action.
These economic data likely increased positive sentiment for the US dollar.
Week ahead
USA CB Consumer Confidence
Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and hence consumers are confident. This likely leads to increased retail sales. A cautious sentiment on the other hand may see consumers spend less in view of a perceived upcoming economic crisis.
AUS CPI
AUS Trimmed Mean CPI
Consumer Price Index is important because the price of consumer goods is a significant component of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.
USA ADP Non-Farm Employment Change
Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A low unemployment rate is an indicator of a healthy functioning economy.
ADP’s statistics is based on the payroll data of approximately 400,000 U.S. business clients. Therefore it is viewed by many as a possible early indication of the US Non-Farm Payroll result.
USA FOMC Statement
USA Federal Funds Rate
USA FOMC Press Conference
Interest rate related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually analyse these statements thoroughly for insights on the interest rate policy.
A high interest usually generates demand while a low interest may result in dumping of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result.
It is expected that an interest rate cut of 0.25% will happen.
USA ISM Manufacturing PMI
Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.
AUS Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.
USA Average Hourly Earnings
USA Non-Farm Employment Change
USA Unemployment Rate
Consumer earnings is important due to it’s upstream impact. With more earnings comes possible increased consumer spending. This translates to revenues, leading to employment and business expansion.
Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A low unemployment rate is an indicator of a healthy functioning economy.
During the US NFP event, volatility may increase. Proper money management is crucial.
There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan.
Members can log in to their dashboards for an economic calendar. The latest premium analysis and our popular Price Action Bias Signals are now available too.
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