AUD/USD Forecast: Indecision Ahead Of Data Heavy Week

Having clocked a weekly high/low of 0.7645-0.7551, the AUD/USD pair ended last week largely unchanged 0.7609 levels.

The technical studies show indecision in the market... could also be referred to as bearish exhaustion.

Weekly chart

Source: CME

The above chart shows-

• Doji candle - It is a neutral pattern, shows indecision in the market. But on the above chart, it shows bearish exhaustion as the doji candle has appeared at the strong support of the weekly 100-MA and after a 600-pip drop.
• However, the exhaustion does not mean trend reversal and only a positive price action (Friday's close above 0.7662) would confirm the bullish doji reversal.

So the question is, will we see a positive follow-through to last week's doji candle?

First of all, the 10-year Aussie-US bond yield differential indicates the AUD is close to losing its reputation as a high yielding currency. Currently, the spread stands at 14 basis points. Let us see if the spread could widen in favor of the USD this week.

Australia data calendar

Reserve Bank of Australia (RBA) is expected to keep rates unchanged. Ivan Delgado, Chief Editor at FXStreet, "the RBA can justify sitting in its comfort zone of neutrality, with arguments to be made for both a future increase or decrease in rates". He adds, "the RBA can and will find enough reasons to justify further room for future monetary policy considerations; there is essentially zero need to rush. Such stance, unlikely to be altered in the near term, will result in depressed expectations in RBA cash rate changes."

To cut the long story short, the RBA is unlikely to provide anything that would boost the AU-US bond yield spread in favor of the AUD. So, only a super strong AU retail sales (Tuesday) and trade balance numbers could help AUD bulls capitalize on the last week's doji (bearish exhaustion) candle. China trade balance due on Friday could strengthen the AUD if the details reveal surge in commodity (copper, iron ore) exports. 

US data calendar

Friday's wage growth is clearly the main event of the week. The 10-year treasury yield has already moved above 2.4 percent on tax reform optimism. Tax cuts are inflationary, hence the yield could easily extend the rally beyond 2.5 percent and may sustain gains if Friday's wage growth numbers better estimates.

Bearish scenario

AUD/USD could end the week below 0.75 (support offered by the trendline sloping upwards from mid-Jan 2016 low and Dec. 2016 low), signaling a continuation of the sell-off from 0.8125 (Sep.2 high), if the Friday's US wage growth numbers beat estimates, while the Aussie data offers no positive surprises.

Bullish scenario

The spot could end the week above the weekly 50-MA (0.7663) if the Aussie retail sales beat estimates by a wide margin and trade surplus expands more than expected. That would confirm bullish doji reversal, still, upside could be capped above 0.77 levels, as the 10-week MA carries a strong bearish bias.