Market Overview

Consolidation Likely For The AUD/USD Ahead Of Friday's Aussie & US Data Releases

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AUD/USD fell 1.8 percent last week as a batch of weaker-than-expected Aussie inflation numbers missed estimates, forcing investors to scale back the already low odds of RBA tightening. Markets do not expect the central bank to hike rates before November 2018.

Macro data/events to watch out for-

Day

Australia/China

US

 

Monday

 

 

Core PCE (YoY) (Sep), Personal Spending (Sep), Personal Income (Sep) (12:30 GMT)

 

 

 

 

Tuesday

 HIA New Home Sales (Sep) (00:00 GMT)

Private Sector Credit (YoY) (Sep) (00:30 GMT)

China Manufacturing and Non-Manufacturing PMI (Oct) (01:00 GMT)

 

Chicago PMI (Oct) (13:45 GMT)

 

 

 

 

Wednesday

China Caixin Manufacturing PMI (Oct) (01:45 GMT)

 

ADP Employment Change (Oct) (12:15 GMT)

ISM Manufacturing PMI (Oct)

FOMC Rate Decision (18:00 GMT)

 

 

 

 

Thursday

 

 

Trade Balance (Sep) (00:30 GMT)

Building Permits (Sep) (01:30 GMT)

 

Weekly jobless claims (Oct 20) (12:30 GMT)

 

 

 

 

Friday

Retail Sales (Sep) (00:30 GMT)

China Caixin Services PMI (01:45 GMT)

Non-Farm Payrolls (Oct) (12:30 GMT)

Average Hourly Earnings (Oct) (12:30 GMT)

Trade Balance (Oct) (12:30 GMT)

The first tier data/events due this week are-

FOMC rate decision - The November 1 FOMC meeting could be lackluster. Danske Bank Analysts write, "We do not think there will be major changes to the FOMC statement and we think the Fed will reiterate that it is monitoring inflation ‘closely’. We think it is likely to mention the fall in employment in September. A hawkish move would be to mention the surprisingly strong wage growth in September. While this fits with the Fed’s conviction that a tighter labor market will eventually lead to wage and hence price growth, the Fed may not want to overemphasize one month of strong wage growth, which could be partly reflective of compositional effects in employment following the hurricanes (mostly low paid workers being laid off without being paid).”

US Non-Farm Payrolls & Wage Growth Numbers - Kathy Lien from BK Asset Management says, "the October jobs report may not be so stellar, particularly since the average hourly earnings growth is expected to slow after rising strongly in September.  For the U.S. Dollar this means that we expect strength in the front of the week with profit taking towards the end." Lien adds, " a strong NFP number (expected 310K) would be largely credited to post-hurricane adjustments.  However, we are skeptical of the labor market's ability to meet such a high bar.

Australia Retail Sales - A decline in consumption as represented by retail sales (Sep) would be bad news as it would indicate consumers are not willing to spend (low consumer confidence) despite the drop in inflation as shown by the data released last week. A weak data could yield another sell-off in the Aussie dollar.

Another good week for the USD? - Kathy Lien writes, " The Republican Party also made substantial progress on tax reform with the House passing the budget that clears the way for House GOP leader to release a draft of the tax bill next Wednesday.  Considering that they were able to pass the budget blueprint without Democratic support, it is now realistic to expect the Republican-led Congress to have the bill introduced, debated and approved by the end of November.  Between the introduction of the tax bill on November 1st and the prospect of a Fed chair announcement before Trump takes off to Asia on November 3rd, we believe next week will be another good week for the U.S. dollar."

USD needs a sustained rise in the 10-year treasury yield

"Nearly every piece of U.S. data released over the past week from third-quarter GDP growth to jobless claims, durable goods, new home sales and the Markit PMI indices were better than expected but good data was not the only reason for the dollar's rise"

While I agree with Kathy Lien's view, it is worth noting that the 10-year treasury yield is struggling to capitalize on the bullish break above 2.4 percent. In fact, the yield revisited the former resistance-turned-support level in the Asian session today. In my opinion, a convincing break above 2.5 percent is necessary to yield another broad-based USD rally. In such a case, the AUD/USD is likely to drop below the support offered by the trend line sloping upwards from May low and June low.

Technical studies signal short-term consolidation in the range of 0.7730 to 0.76 before a wave of offers pushes the pair down to 0.7530-0.75 levels.

AUD/USD 4-hour chart

screen_shot_2017-10-30_at_1.14.21_pm.png

  • The bullish divergence seen above could yield a corrective rally to the 50-MA. The moving average is seen sloping downwards to 0.7730 levels in the next 24-36 hours.

AUD/USD daily chart

screen_shot_2017-10-30_at_1.14.49_pm.png

  • The RSI is close to being oversold.
  • The pair witnessed a solid rebound from the 61.8 percent fib on Friday.
  • The rising trend line support is seen around 0.7610 levels.

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  • Short-term consolidation in the range of the 0.7730-0.76 handle is likely.
  • Only a strong rally in the US 10-year yield above 2.5 percent could yield a convincing break below the key trend line support and a drop to sub-0.75 levels in the AUD/USD pair.
  • On the higher side, a move above downward sloping 10-day MA (0.7767) is likely to be short-lived.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: FXStreetForex Markets

 

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