AUD/USD breaks down ahead of Aussie jobs data
Fawad Razaqzada November 16, 2016 12:50 PM
When it comes to stubbornness nothing comes close to the AUD/USD. Up until the end of last week, it was neither the buyers nor the sellers who had been able to make a meaningful breakthrough in terms of pushing the unit in one or the other direction since the summer. But on Friday, the sellers finally won the battle. Like all the other major pairs and most buck-denominated commodities, the Aussie finally cracked under pressure from the US dollar.
When it comes to stubbornness nothing comes close to the AUD/USD. Up until the end of last week, it was neither the buyers nor the sellers who had been able to make a meaningful breakthrough in terms of pushing the unit in one or the other direction since the summer. But on Friday, the sellers finally won the battle. Like all the other major pairs and most buck-denominated commodities, the Aussie finally cracked under pressure from the US dollar. The latter has been surging higher ever since Donald Trump won the US elections. Many analysts believe that his ambitious spending plans and tax cuts will create jobs, boost growth and in turn create inflation. Wishful thinking in my view, although I hope I am wrong. But the dollar could remain supported nonetheless given that the Fed appears poised to hike interest rates in December before tightening its policy further in 2017. After all, no other major central bank is as hawkish as the Fed. But how much of the dollar strength will the Fed tolerate? Clearly, a strong currency is not good for US exports or tourism.
But the immediate focus for the AUD/USD pair is now on Australian jobs data due for release tonight or in the early hours of Thursday depending on your geographical location. Employment is expected to have bounced back by 20 thousand after dropping by nearly 10 thousand in September. However despite this expected bounce, the unemployment rate is still seen rising to 5.7% from 5.6%. Unless the employment figures come out significantly stronger, the AUD/USD may continue to push lower given the technical damage it has suffered in recent days.
After having successfully defending the 0.7720-7770 resistance range once again earlier last week, the sellers managed to push the pair through the 50-day moving average and the rising trend line on Friday. In the process, several short-term support levels were taken out, including the 0.7580 level. At the start of this week, the AUD/USD paused for breath, but today the selling pressure has resumed again. As can be seen on the chart, the 200-day moving average has also been taken out. So the trend appears to be firmly bearish now and it looks like price has also formed a double top reversal formation. If the break below the 200-day average is sustained now, we could see price dip test the prior swing low at 0.7445, which is also the neckline of the double top formation. In theory, if that level also breaks down then we could see an eventual drop to 0.7145, which was a major low in the summer and corresponds with the measured move objective of the double top pattern. That being said, a potential break back above short-term resistance at 0.7580 would invalidate this bearish outlook. In this scenario, a short-squeeze rally towards 0.7630 or even 0.7720 would then not come as a surprise.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.