AUD/USD Forecast: Poised For An Upside Break?

The AUD/USD pair ended the last week on a flat note at 0.7657. Bears failed for the third straight week to keep the spot below the weekly 100-MA. Still, over the last two weeks, the pair has been restricted in the range of 0.77-0.76. As of writing, the spot is trading in a sideways manner around 0.7660 levels.

US tax reforms to overshadow macro data releases

• Dollar - Senate Tax Bill Provides No Reassurance to the Dollar

Last week, Senate Republicans presented their own tax plan with a number of key changes, setting up the stage for a showdown in the lower house. This has boosted speculation that the tax reform may not be completed before the year-end.

Progress in the tax reform talk could easily overshadow a combination of weak US data and strong Aussie data and lead to USD rally. On the other hand, more setbacks on the tax reform front could kill the US dollar.

Macro data/events due this week

Wednesday - Australia Q3 wage price index - 00:30 GMT

Despite the continued strength in the labor market, wage growth has remained anemic. It is one of the reasons for weaker inflation readings...

The third quarter wage growth is seen rising to 0.7% (up from 0.5%), mainly due to the impact of minimum wage increases on July 1. A better-than-expected data could strengthen the Aussie dollar and vice versa.

Thursday - Australia Employment data - 00:30 GMT

The employment data is likely to show continued labor market tightening. The economy is expected to have added around another 15,000 jobs in October, which would be the 13th straight month of job gains. While the headline figure could dominate wires, the AUD is likely to take cues from the full-time job number. The unemployment is seen rising slightly to 5.6% from 5.5%. Strong full-time jobs number could strengthen the bid tone around the Aussie.

Meanwhile, from the US side, we have inflation indices and retail sales data due for release this week. USD bulls would want to see a better-than-expected core inflation and retail sales control group numbers.

Technical studies show the AUD/USD is setting up for an upside break of the recent trading range.

Daily chart

• On the dailies, the ascending trendline has worked as a strong support since Oct. 27, thus ensuring the downside remained capped in the range of 0.7620-0.7650. Meanwhile, on the higher side, the 200-day MA hurdle proved a tough nut to crack last week.
• Also, the downward sloping head-and-shoulders neckline is working as a strong resistance as well.
• The chart also shows a bearish 50-day MA and 100-day MA crossover. Note that long-term moving average crossovers initially work as a contrarian indicator. Furthermore, the 5-day MA and 10-day MA are sloping downwards (in favor of the bears).

Weekly chart

• The above chart shows the bears have failed for three straight weeks to breach the weekly 100-MA (blue line).
• The RSI below 50.00 (in the bearish territory).
• However, the 5-week MA and 10-week MA are still sloping downwards.

View

• Repeated failure to breach the rising trend line and the weekly 50-MA, coupled with confirmation of a lagging indicator (bearish 50-day MA and 100-day MA) suggests the spot could break above 0.77 levels and test supply around 0.78 levels.
• Further gains are ruled out, courtesy of the downward sloping 5-week MA and 10-week MA and bearish weekly RSI.

Bearish scenario
4-hour chart

• Failure to take out the descending trendline followed by a move below 0.76 would open doors for a sell-off to 0.75 and 0.7442 (Sep. 2016 low).