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AUDUSD Bottoms Out Ahead of FOMC Minutes, on RBA’s Hawkish Tone

By 11/21/2017 No Comments

AUDUSD Analysis: The AUDUSD pair may have bottomed out at a key pivot level. This happened after Reserve Bank of Australia (RBA) Governor Philip Lowe appeared to gradually change his outlook for monetary policy. But now we have more risk events coming up from the US, such as the FOMC Meeting Minutes. Will this be the beginning of a new uptrend? Let’s take a look at 3 key points of IDDA. Technicals, fundamentals and market sentiment.

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1- AUDUSD Technical Analysis

After reaching the key pivot level and 78% Fibonacci retracement level of 0.7531, AUDUSD formed a bullish engulfing candlestick pattern on Tuesday. The pair opened above the bullish candle on Wednesday’s Asian session. However, with the upcoming US event risks, the market may see more volatility. On the daily chart, AUDUSD remains below the daily Ichimoku cloud.

AUDUSD Technical Analysis - Daily Chart

AUDUSD Technical Analysis – Daily Chart

On the 4-hour chart, AUDUSD has formed a Double Bottom bullish reversal chart pattern. It has broken above the neckline of the chart pattern. However, just like in the daily chart, it remains below the 4-hour Ichimoku cloud.

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AUDUSD Technical Analysis - 4-hour Chart

AUDUSD Technical Analysis – 4-hour Chart

 

2- AUDUSD Fundamental Analysis

The second point of the IDDA looks at the fundamentals of the countries’ currency.

Australia’s side

 Reserve Bank of Australia (RBA) Governor Philip Lowe insisted the next move in official interest rates is more likely to be up, rather than down. However, he also said that there are still too many people out of work.  Inflation is set to remain below his 2-3% target through 2019.

Lowe set out his view that unemployment at a more than four-year low showed the RBA is on the right path. But, they are still taking the wait-and-see approach. Which in turn, may keep the longer-term outlook for AUD/USD to move back to the downside.

The good news is that last time Australia’s unemployment was this low was February 2013. But, if you look at their jobs data carefully, you’d realize that the unemployment rate fell only because of the participation rate. Basically, the percentage of people looking for work dipped 0.1 of a percentage point to 65.1%.

With this, we’re seeing mixed signals on the fundamentals point of IDDA.

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US Side

 Besides the US political developments which are one of the key drivers of USD, we have some key economic events coming up. On Wednesday, the US weekly jobs report and Durable Goods Orders are out at 12:30 PM GMT. The Durable Goods Orders number is expected to drop to 0.4% from previous reading of 2%. A better than expected reading could strengthen the US dollar. That would in-turn, push the AUDUSD pair lower.

But this event could be overshadowed by the FOMC Meeting Minutes at 7 PM. While the minutes are widely expected to reaffirm the likelihood of a December hike, profit-taking ahead of the long weekend could mix with the market reaction to this report.

3- AUDUSD Market Sentiment

The third point of IDDA looks at market sentiment. On Monday, retail trader data showed 60.5% of traders were net-long the pair. The number of traders net-short is 24.2% lower from last week. However, positioning is less net-long than yesterday but more net-long from last week.

We typically take a contrarian view of crowd sentiment. The combination of current sentiment and recent changes gives us a further mixed AUDUSD trading bias.

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Final Thoughts…

As the 4th point of the IDDA, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio. At the moment, we have rather mixed views on the AUDUSD pair. However, you’d want to keep an eye on the pair, in case Wednesday’s volatility clears out a direction for the pair. Join our investing group to get the latest trading signals!

 

xoxo

Kiana Danial

 

 

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