In the previous AUD/USD forecast we observed a doji candle stick for the second week. This suggested significant apprehension and uncertainty. The lower bollinger band remained an influence of price action and functioned as a support.
A return of bullish momentum would place the currency pair against the significant sentiment and technical region of 0.68.
The economic data streaming out of the US was unpromising. Worse then expected PMIs were released and were below 50 which is a contraction. There were a number of investors and analysts that speculated the possibility of additional interest rate cuts. If indeed, the US dollar might face downside pressure.
The US Non-Farm Payroll came out mixed. While the number of jobs created was lower than expected, unemployment rate fell to a new 50 years low of 3.5%. The market appeared to be pleased as risk appetite appeared to increase resulting in a shift to riskier assets at the expense of the US Dollar.
Looking at the AUD/USD weekly chart above, we see a bullish week. As expected, the bullish pressure had a face off with the significant sentiment and technical region of 0.68. The currency pair failed to establish a foothold at 0.68 and had settled for the week just below it.
The price action continues to be pivotal as bullish and bearish pressure struggle to gain dominance. This is not unexpected considering the significance of 0.68. If the bullish momentum continues, a clear break above 0.68 will likely see the middle bollinger band tested next.
If bearish pressure returns, we may see a push towards the lower bollinger band.
Australian Economy Remains Fragile
The Westpac Consumer Sentiment came in at a 4 year low of -5.5%. Consumer sentiment 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.
It is important that we recognize the fact that despite supportive actions by the Reserve Bank of Australia, consumer sentiment remains depressive. A continuation of the current situation will likely add pressure to the central bank as options become limited.
Market Remains Sentimental
A closer look at the AUD/USD on the daily chart shows a bearish week turned bullish towards the weekend. Reports of optimism for a successful US China trade deal dialed up the risk appetite.
Hopes of a Brexit deal also increased as UK PM Boris Johnson was reported to have signaled an U turn on the arrangements for the Irish border. A 48 hours of intense negotiations was stated to follow.
These developments likely flooded the markets with positive sentiment and resulted in a demand for riskier assets.
The Week Ahead
There are many speeches by central bank officials due in the coming week. These are also highly sentiment, especially when unexpected insights are revealed.
The developments of the US China Trade War and Brexit will likely remain influential.
The AUS monetary policy meeting minutes is scheduled to be released early in the week. Investors and analysts will be keen to examine the release for insights. This may set an early tone for the week.
USA FOMC Member George Speech
USA FOMC Member Bullard Speech
USA FOMC Member Evans Speech
USA FOMC Member Brainard Speech
AUS RBA Deputy Gov Debelle Speech
USA FOMC Member Bowman Speech
USA FOMC Member Evans Speech
USA FOMC Member Williams Speech
USA FOMC Member George Speech
USA FOMC Member Clarida Speech
Speeches may reveal new insights to economic policies or contain a question and answer segment that at times go into unscripted topics resulting in unexpected developments and volatility.
AUS Monetary Policy Meeting Minutes
Monetary policy meeting minutes are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.
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.
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.
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 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 Industrial Production
Industrial production serves as a leading indicator of economic activity. If production is high, it suggests that economic activity is high. This may indicate a functioning economic climate.
USA Crude Oil Inventories
Movement of oil supply may bring insights to the level of general economic activities. For example, an increasing supply may suggest excessive production or diminishing demand. A reducing supply on the other hand may suggest an economic pick up.
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.
Traders should always practice proper money management and seek to understand the underlying tones for the market.