AUD/USD Weekly Forecast 19 Aug 19


In the previous AUD/USD forecast, we noted that the currency pair ended the week as a doji. It was important to understand that while the foothold below 0.68 inspired a push for the 0.66 region, it then eased back towards 0.68. This suggested a significant bullish resistance towards the downside momentum, resulting in a neutral bias. This was in line with our Price Action Bias Signals.

The week saw continued apprehension towards the US and China trade war which might weight down on the Australian economy.

The Reserve Bank of New Zealand cut its cash rate, triggering some speculations that the Reserve Bank of Australia might follow.

Reserve Bank Governor Philip Lowe mentioned that he would introduce more easing by reducing Australia’s interest rates further if required. Having said so he also brought across a sense that the Australian economy could be through the worst of its challenges. He spoke of signals showing that a gentle turning point has been met and he also expects the Gross Domestic Product figures to strengthen.

Technical Analysis

Looking at the AUD/USD weekly chart above we see a doji again. This suggests a significant amount of apprehension as traders are equally torn between long and short positions.

It is important to note that the AUD/USD did not manage to end the trading week above 0.68. This suggests a slight bias towards the downside.

If the bearish momentum intensifies, 0.67 will likely be the next target. A bullish return will probably target the middle bollinger band followed by the strong sentiment and technical region of 0.7. Having said so, the strong sentiment and technical region of 0.68 must be taken first.

US China Trade Dispute Woes

China commented that the US decision to impose additional tariffs on certain Chinese imports is against the agreement that was reached by both sides at the G20 summit in Osaka. They further mentioned that they would have to take countermeasures. These developments likely flooded the market with risk aversion, adding to the strength of usual “safe” assets such as the US dollar. Many financial bodies are warning of the impact of the protracted trade war.

Investors are sensitive to geo political developments as there may be a significant impact on the country’s economy and currency.

US Economic Vitals Green

Towards the end of the week, a number of significant US economic data was reported to be better than expected.

  • Core Retail Sales came out at 1% instead of 0.4%
  • Retail Sales came out at 0.7% instead of 0.3%
  • Philly Fed Manufacturing Index came out at 16.8 instead of 10.1

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. This result likely came across as a positive indication of the US economy.
As for the manufacturing survey, it is 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. A result of more than 50% to the upside is an indication of near term optimism.

This might have eased some of the apprehension as risk appetite improved.

Good Employment Figures Inadequate For Bullish Run

The Australian employment change data came out much better than expected. It was reported to be 41.1K instead of 14.2K. That is almost 300%! This probably brought some relief as employment is a vital component of the economy. It is evident on the daily chart as late week saw some gain for the Australian dollar. Having said so, the weight of the apprehension likely limited its market potential.

Doji Reflects Sentiment

This week is a classic showcase of sentimental influence on price action. Early week, risk aversion was significant, weighting down on “riskier” assets such as the Australian dollar. Assets traditionally deemed safe such as the US dollar gained.

Towards the end of the week, positive economic data from Australia and the US led to improving sentiment. Risk appetite increased and we see a corresponding pick up of the Australian dollar.

One point we have to be mindful of is that the doji suggests a general apprehension towards the market. Traders are not sure of what lies ahead and are probably treading lightly.

The Week Ahead

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.

USA FOMC Member Quarles Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.

USA FOMC 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.

USA Flash 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.

USA Jackson Hole Symposium
This is an event attended by many significant figures in the world of finance such as finance ministers and central bankers. Speeches or interviews given may reveal important insights that result in price action.

USA Fed Chair Powell Speech
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.

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.

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

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