AUD/USD Weekly Forecast 13 May 19


In the previous AUD/USD weekly forecast, we noted that the currency pair was bearish for the week. There was a repeated dip below 0.7 and we cautioned that repeated attempts to breach the strong sentiment and support of 0.7 might weaken the region and open up further bearish momentum.
The week was peppered with weaker than expected economic data. China’s survey of purchasing managers surveys were disappointing and the Australian Building Approvals was worse than expected. -15.5% instead of the expected -12.5% was reported. Sentiment towards the Australian economy and currency had been impacted significantly. The AUD/USD was the only currency pair among those that are covered by our premium analysis to have weaken against the US dollar for that week.

AUD/USD Technical Analysis

Looking at the AUD/USD weekly chart above, we note that the week was bullish. Having said so, you may notice that the value is lower than last week. This is indeed so as there was a significant forex gap at the start of the week due to the developments over the weekend. In terms of actual figures, the week was bearish and this is clearly visible in our premium analysis table for the AUD/USD.

Referring to the hourly chart of the AUD/USD above, we see the gap between the end of the previous trading week and the start of the new week. Forex gaps can happen anytime without warning. Hence it is important to always have proper money management so as to mitigate the risk.

In the week ahead, the AUD/USD will likely attempt to regain 0.7. Being a major sentiment and technical region, 0.7 is likely to yield pivotal influence. A sustained momentum is likely required to break free of the region. Should the bullish recovery succeed, 0.71 and the middle bollinger band will likely be a resistance. If the bearish pressure returns, the lower bollinger band may offer some support followed by the next sentiment and technical region of 0.69.

US China Trade Talks’ Ice Bucket Challenge

After a period of seemingly good progress for the negotiation between the US and China trade teams, an ice bucket emptied. US President Trump announced a new set of tariffs on Chinese imports and applied it towards the end of the week. The reason given by the US was that China backtracked on almost all aspects of the deal. Needless to say, China announced that retaliation will follow.
Besides being a geo political situation with global implications, Australia is particularly sensitive towards the trade war as China is an important trading partner. This is clearly reflected in the week’s price action as the AUD/USD remained depressed below 0.7.

Australia’s Positive Reports

Trade war aside, we did receive a number of better than expected economic data from Australia.

Retail sales was reported to be 0.3% instead of 0.2%. Retail sales is a fundamental component of the economy and as consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.

The Australian trade balance was 4.95 billion instead of 4.49 billion. This is an increase of more than 10%. Trade balance is a measurement on trade volume and net direction. Whether a country is net import or export is important. If more exportation is done, it is likely to be beneficial for the local currency as foreign companies usually buy with the local currency. This creates demand and adds bullish pressure.

Against expectations, the Reserve Bank of Australia kept the cash rate at 1.5%. Most analysts had expected a cut to 1.25%.  While normally a boost for sentiment, the US China trade fall out likely eclipsed it. There are also a number of analysts who believe that this is just temporary and a rate cut is inevitable in the near future.

Despite the positive developments above, the currency pair was subdued. This is an indication that the US China Trade Talks is critical for the Australian economy and currency.

USA CPI Increase Dips

Towards the end of the week, the USA Consumer Price Index was released. Both the CPI and Core CPI came in at 0.3% and 01% respectively instead of the expected 0.4% and 0.2%. 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. Higher interest rates usually result in demand for the currency.

The Week Ahead

AUS RBA Assist Gov Debelle Speech
USA FOMC Member Clarida Speech
USA FOMC Member Williams Speech
USA FOMC Member George Speech

Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
AUS Wage Price Index
Employment cost is a leading indicator of inflation. If cost rises, the increase is reflected downstream in the price of production and products. If inflation is high, a central bank may increase interest rate to mitigate the situation.
CNY Fixed Asset Investment
Infrastructure spending gives an insight into the current economic climate. If there are increased activities associated with the building of factories, roads, etc, it may suggest that the economy is poised to do well. Furthermore the construction activities will result in employment, sales of materials, etc.
CNY Industrial Production
Industrial Orders serve as a leading indicator of economic activity. If orders are high, production will be increased. This flows downstream leading to employment, revenue and more.
USA Core Retail Sales
USA 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 FOMC Member Quarles Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
AUS Employment Change
AUS Unemployment Rate

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.
AUS RBA Assist Gov Bullock Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
USA Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.
USA Philly Fed Manufacturing Index
Business Climate surveys are influential as the sentiment of businesses 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.
USA FOMC Member Brainard Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
USA Prelim UoM Consumer Sentiment
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.
USA FOMC Member Clarida Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
AUS Parliamentary Elections
Investors are sensitive to sovereign developments as a change politically may have significant impact on the country’s economy and currency.

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.

Traders should always practice proper money management and seek to understand the underlying tones for the market.

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