audnzd further potential downside towards long term range support 2693122017

Tomorrow, 01 June 2017 at 0130 GMT, we will have the release of Australian retail sales for April which is one of the key economic data that Australian central bank, RBA will monitor in order to craft its monetary policy.

Last month (Mar) retail sales recorded a dismal growth of -0.1% m/m largely due to the disruptions caused by Cyclone Debbie that hit Australia at the end of March which lead to a widespread closure of retail shops. Market participants  have a consensus reading of 0.3% m/m growth in retail sales for April.

However, there are still some possible factors that can cause the retail sales to fall short of current expectations are as follow:

• Average wage growth has continued to be subdued as the latest quarter that ended in March 2017 recorded an annualised growth of 1.9%, similar to Q4 of 2016 which is a record low. Lacklustre wage growth is likely to restrain consumer spending that can put a dent to retail sales.
• In addition, the latest Consumer Confidence data for May recorded a decline from 98 in April to 97.99 which lead it to see three consecutive months of decline since February 2017. This slowdown in Australian’s consumer confidence is in line with lacklustre wage growth.
• One major retailer, Topshop Australia has gone into voluntary administration which suggests that the retail sector is in a poor state of health.

Therefore if retail sales continue to disappoint, RBA will be less likely to offer guidance in normalising its monetary policy soon and maintain its policy cash rate at a record low of 1.5% that is likely to put a cap on further AUD’s strength in the short-term.

Now, let’s us take a look at an interesting configuration in AUD/NZD from a technical analysis perspective.

Short-term technical outlook on AUD/NZD

(Click to enlarge charts)

Key technical elements

• In the longer-term, the AUD/NZD cross pair has continued to evolved in a 2-year plus of consolidation phase since Mar 2015  parity low within a multi-year bearish descending channel in place since March 2011 high of 1.3795. The lower limit/support of the 2-year plus consolidation phase now rests at 1.0370 (see weekly chart).
• In the shorter-term, the price action of the cross pair has been trading within a bearish descending channel since the minor swing high area of 19 May 2017 (see 1 hour chart).
• From the recent minor swing low of 1.489 printed on 27 May 2017, the cross pair has been evolving in a contracting range configuration which has traced out a bearish continuation “Descending Triangle” configuration with its neckline support at 1.0489 that is likely due for a potential bearish breakdown to resume its short-term downside movement within the aforementioned descending channel (see 1 hour chart).
• Interestingly, the potential exit target of short-term “Descending Triangle” bearish breakdown and the lower limit/support of the short-term descending channel from 19 May 2017 minor swing high confluences with 1.0370 support of the long-term consolidation phase from March 2015 low In addition, it is also a 0.618 Fibonacci projection of the down move from 19 May 2017 minor swing high to 27 May 2017 low of 1.489 projected from the high of the “Descending Triangle” at 1.0571 (see 1 hour chart).
• The hourly RSI oscillator has already staged a bearish break below its corresponding support at the 37% level which indicates a bearish pre-signal in advance that suggests a revival of short-term downside momentum of price action.
• The intermediate resistance now stands at 1.0535 which is the upper limit of the aforementioned short-term “Descending Triangle”. The key short-term resistance stands at 1.0570.

Key levels (1 to 3 days)

Intermediate resistance: 1.0535

Pivot (key resistance): 1.0570

Support: 1.0370

Next resistances: 1.0743

Conclusion

The AUD/NZD continues to exhibit bearish technical elements in the short-term. Based on fractal analysis/Elliot Wave Principal, the cross pair may shape a residual push up to test the upper limit of the “Descending Triangle” now at 1.0535 before a potential bearish break below 1.0489 that can open up scope for a further potential drop to target the 1.0370 support (long-term consolidation phase since March 2015 low).

On the other hand, a clearance above the 1.0570 key short-term pivotal resistance is likely to invalidate the preferred bearish bias to see a squeeze up to retest the minor descending trendline from 01 May 2017 high now acting as a resistance at 1.0743.

Charts are from eSignal

Disclaimer

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.