Last week's trading sessions saw AUDUSD fall sharply as the Aussie was hurt by increased risk aversion among international investors due to the worsening European financial crisis, and the U.S. Dollar benefitted from saber rattling among North and South Korea.
The week began with AUDUSD trading higher initially, making its weekly high of 0.9953 on Monday before then trading lower. The U.S. Dollar benefitted from growing risk aversion after Moody's Investor Services warned the market that it might have to make a multiple notch downgrade for Irish debt. The rating agency noted that the rescue package from the EU and the IMF would, "crystallize more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign's debt burden." Over the previous weekend, the Irish government had agreed to the joint EU/IMF bailout program, which is currently estimated to be between 80 and 100 Billion Euros.
The rate then fell sharply on Tuesday after news of a possible military confrontation between North and South Korea prompted safe haven Greenback buying across the board. In terms of economic releases out last Tuesday, the Australian CB Leading Index fell by -0.1% for the month, compared with a previous reading of +0.2%. Also, Australian Construction Work Done fell by -2.1% for the quarter, which was considerably worse than the rise of +2.3% anticipated, although the previous number was revised significantly higher from +3.5% to +4.5%. Tuesday's U.S. data releases included Preliminary U.S. GDP that came out at +2.5% for the quarter, compared with an anticipated +2.3%, while Existing Home Sales fell to 4.43M from 4.5M that was lower than the consensus call of 4.51M. Also out on Tuesday was the FOMC's Meeting Minutes for their November 2nd and 3rd meeting. The minutes showed that the FOMC had approved the new QE II by a near unanimous vote of 10-1 and had also downgraded its estimate for future unemployment, which is now projected to fall within the 8.9% to 9.1% range for 2011. In addition, U.S. inflation was forecast to rise somewhat but still stay below 2%. The committee also downwardly revised its growth estimate that now has U.S. GDP projected to grow by 2.4% to 2.5% for 2010, 3.0% to 3.6% for 2011, 3.6% to 4.5% for 2012 and 3.5% to 4.6% for 2013.
Wednesday then saw the rate trade higher as the Aussie benefitted from Australian Private Capital Expenditure showing an impressive +6.2 rise for the quarter that was almost double the anticipated gain of +3.2, and the previous number was also revised upward from -4.0% to -3.2%. With respect to U.S. data releases out last Wednesday, Core Durable Goods Orders fell by -2.7% for the month that was significantly lower than the anticipated rise of +0.7% anticipated, although the previous number was revised significantly higher from -0.8% to +1.3% which neutralized the dollar-negative impact somewhat. U.S. Durable Goods also fell by a large -3.3% compared with an anticipated rise of +0.2%, but the previous number was revised upward from +3.3% to +5.0%. Also out last Wednesday was the University of Michigan's Consumer Sentiment Indicator which printed at 71.6 compared with an anticipated 69.5, and Initial Jobless Claims improved to 407K compared with an anticipated 434K. Nevertheless, U.S. New Home Sales came out at 283K that was considerably lower than the 311K anticipated.
On Thursday, the rate consolidated in a tight range as the United States celebrated its Thanksgiving Day Bank Holiday that closed U.S. markets.
On Friday, AUDUSD then traded down to its weekly low point of 0.9612 after a speech by RBA Governor Stevens which the market took as indicating that a benchmark interest rate hike for Australia remains unlikely in the near to medium term. Stevens also noted that current rates were "a little tighter than average" and expressed hopes that a stronger Aussie would help keep inflation down. The rate was also hit by increasing tensions among North and South Korea, as well as growing market concerns that Spain and Portugal were also heading for an EU/IMF bailout. AUDUSD then went on to trade a bit higher on position squaring to close the week at 0.9642, showing an impressive net fall of -2.2% compared with the previous weekly close.
Fundamental Outlook for AUDUSD
The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in Australia and United States are as follows:
Australia:
The economic data week coming up in Australia is somewhat quieter than last week, and the economic calendar's closely watched releases will feature the Australian Retail Sales data scheduled for release on Thursday.
The moderately active economic data week starts on Monday with the release of the tentatively scheduled HIA New Home Sales (last +0.6% m/m), as well as Company Operating Profits (+4.3% q/q), and RBA Governor Stevens will give a speech in Melbourne.
On Tuesday, RBA Assistant Governor Debelle will give a speech in Sydney, and data releases include Building Approvals (+1.6% m/m), the Australian Current Account (-6.4B) and Private Sector Credit (+0.2% m/m).
Wednesday will offer the AIG Manufacturing Index (last 49.4), as well as the important Australian GDP data (+0.5% q/q) and Commodity Prices (last 46.0% y/y).
Thursday then features the highlighted Australian Retail Sales data (+0.4% m/m), as well as the Australian Trade Balance (2.13B).
Friday will conclude the somewhat busy week with the scheduled release of only the AIG Services Index (last 50.7).
United States:
The economic data week coming up in the United States is somewhat more active than last week, and the economic calendar will feature important U.S. employment data like the key Non Farm Payrolls number that is scheduled for release on Friday.
Monday will begin the quite active week with the tentatively scheduled release of the important U.S. Treasury Currency Report.
Tuesday will then offer the S&P/CS Composite-20 HPI (+1.2% y/y), the Chicago PMI (60.1), the CB Consumer Confidence survey (52.8), and Federal Reserve Chairman Ben Bernanke will give a speech in Columbus.
Wednesday's calendar looks particularly busy with Challenger Job Cuts (-31.8% y/y), the important ADP Non-Farm Employment Change (70K), Revised Nonfarm Productivity (+2.4% q/q), Revised Unit Labor Costs (-0.2% q/q), ISM Manufacturing PMI (56.3), Construction Spending (-0.3% m/m), ISM Manufacturing Prices (70.9), Crude Oil Inventories (last 1.0M), Total Vehicle Sales (12.1M), and the important Fed Beige Book all scheduled for release. FOMC Member Yellen will also give a speech in New York on Wednesday.
On Thursday, traders will be watching for Initial Jobless Claims (425K), Pending Home Sales (-0.9% m/m) and Natural Gas Storage (last -6B) to be released. Also on Thursday, FOMC Member Bullard will give a speech in Washington D.C., and FOMC Member Duke will give a speech in Philadelphia.
Friday will conclude the notably busy week with the scheduled release of the highlighted Non-Farm Payrolls data (+143K), in addition to the U.S. Unemployment Rate (9.6%), Average Hourly Earnings (+0.2% m/m), ISM Non-Manufacturing PMI (54.7) and Factory Orders (-0.7% m/m).
Technical Outlook for AUDUSD
On the technical front, AUDUSD again failed to break back above its key psychological 1.0000 parity level last week, only getting as high as 0.9953 on Monday before coming off as low as 0.9612 last Friday and closing the week a bit above that at 0.9642, showing a net fall of -2.2% compared with the previous weekly close.
The rate has broken down below a short term upward slanting trend line now drawn at 1.0049, and AUDUSD is trading just above the lower support line of a key bullish medium term upward channel now drawn at 0.9606 with a top line currently at 1.0414. A sustained break of this line to the downside would then set up an 808 pip measured move objective. When projected from the present level of the trend line, it would indicate a move down to 0.9606-0.0808 = 0.8798 if the line breaks decisively. In addition, a chart pattern resembling a Head and Shoulders top is appearing on the daily charts that could indicate significantly lower levels for AUDUSD if its neckline around present levels gives way.
Nevertheless, last week's downside price action remained well above AUDUSD's 200-day Moving Average, which now reads at 0.9149 and has a positive slope that still indicates a bullish medium term outlook for the pair. Furthermore, the rate's key 14-day RSI furthered its recent downwards trend last week and now reads in the lower part of neutral territory at 39.
Nevertheless, the rate's key 14-day RSI has furthered its recent downwards trend and now reads in the lower central part of neutral territory at 40 after having broken out of its medium term up channel. The present neutral level for this key indicator is unlikely to impede a move in either direction, and no divergence is yet showing for the most recent downward move from the 1.0182 high.
Also, AUDUSD's Bollinger Bands have begun to expand after last week's relatively volatile price action, and the indicator's center line has now declined slightly to the 0.9902 level. The Upper Band now comes in at the 1.0219 level and could offer considerable resistance to a move higher, with initial resistance provided at the indicator's center moving average line and support indicated at the lower Bollinger Band line now at 0.9585 that recent price action has already touched. A sustained break above the indicator's center line could then target the level of the upper Bollinger Band.
From an Elliott Wave perspective, AUDUSD's recent zig zag style correction to the downside has resulted in an initial test of the 23.6% Fibonacci retracement level at 0.9683 of the up move from the 0.8066 low of May 25th to the 1.0182 high of November 5th. If a move below that initial retracement level is sustained, the additional retracement levels come successively into play. These are the 38.2% level of 0.9374, the 50.0% level of 0.9124, the key 61.8% level of 0.8874 and the 100% level at 0.8066.
With the rate having closed last Friday at the 0.9642 level, the chart for AUDUSD now shows initial resistance in the 0.9708/24 region, in the 0.9811/53 region and in the 0.9911/53 region - just below the major psychological parity level of 1.0000. Support for AUDUSD is indicated initially at 0.9612, and then below that at 0.9541, 0.9452 and 0.9330.
This overall technical scenario now yields only a mildly bullish medium term outlook for AUDUSD, although this may soon be neutralized if the current corrective activity to the downside continues much further. Traders should watch carefully the medium term up channel trend line now at 0.9606 for a sustained break to the downside.
Nevertheless, the technical picture seems neutral to correctively bearish in the short term, and so shorter term traders can look to purchase AUDUSD cautiously near present levels ahead of the medium term up channel support line, with a stop and perhaps even a reversal sell order placed safely below that line. Profit taking on near term long positions would be suggested initially ahead of the 1.0000 parity level, but if that key level breaks, then above it near the post float 1.0182 high and then ahead of the medium term up channel top line now at 1.0359.
Figure 1: Daily candlestick chart of AUDUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.
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