Australian Dollar Talking Points
AUD/USD fills the gap from earlier this week as updates to Australia’s Gross Domestic Product (GDP) report instills a weakened outlook for the region, and recent price action raises the risk for a further depreciation as the exchange rate carves a series of lower highs & lows.
AUD/USD Carves Bearish Series, RSI Threatens Upward Trend
Signs of a slower growth is likely to keep the Reserve Bank of Australia (RBA) on the sidelines at the first 2019 meeting on February 4 as ‘the low level of interest rates is continuing to support the Australian economy,’ and the central bank may continue to endorse a wait-and-see approach over the coming months as ‘growth in household income remains low, debt levels are high and some asset prices have declined.’
Even though the U.S. and China agree on a 90-day truce, the ongoing shift in trade policy may continue to dampen the economic outlook for the Asia/Pacific region the RBA sees ‘signs of a slowdown in global trade.’ In turn, Governor Philip Lowe & Co. appears to be on track to support the real economy throughout 2019, and it seems as though the central bank is also bracing for a further depreciation in the aussie-dollar exchange rate as ‘there has also been a broad-based appreciation of the US dollar this year.’
In turn, AUD/USD may continue to chip away at the advance from the 2018-low (0.7021) as the Federal Reserve is widely expected to deliver a 25bp rate-hike next month, but the recent pickup in volatility appears to be spurring a round of profit-taking amid the drop in retail interest.
The IG Client Sentiment Report shows 60.3% of traders are now net-long AUD/USD compared to 54.3% last week, with the ratio of traders long to short at 1.52 to 1. However, the number of traders net-long is 23.5% higher than yesterday and 5.4% lower from last week, while the number of traders net-short is 31.5% lower than yesterday and 17.0% lower from last week.
Waning participation may foster range-bound conditions as market participants eagerly wait for the Federal Open Market Committee (FOMC) interest rate decision on December 19, but the growing skew in retail position offers a contrarian view to crowd sentiment especially as both price and the Relative Strength Index (RSI) start to threaten the bullish formations carried over from October. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Daily Chart
- Keep in mind, the break of the September-high (0.7315) instills a constructive outlook for AUD/USD, but the advance from the 2018-low (0.7021) appears to sputtering ahead of the 0.7400 (38.2% expansion) handle as both price and the Relative Strength Index (RSI) threaten the upward trends carried over from October.
- With that said, lack of momentum to hold above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region brings 0.7230 (61.8% retracement) on the radar, with the next downside region of interest coming in around 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement).
- Next downside hurdle comes in around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) followed by 0.7020 (50% expansion), which lines up with the 2018-low (0.7021).
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— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
Is Gold Posed to Lose its Luster?
GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL
- Gold’s recent bullish breakout may come under pressure despite strong safe-haven demand
- A strong US Dollar notching year-to-date highs to limit further advances in gold
- Prospect of a Federal Reserve rate hike pause could shoot the precious metal higher
GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL
Over the last 5 days of trading, XAUUSD declined 0.72% as investors anxious over slowing global growth sent the US Dollar higher. Although risk-off sentiment should send the precious metal higher, gains in the Greenback overpowered bullish bids for gold. A higher US Dollar makes purchasing gold denominated in America’s currency relatively more expensive thus limiting upside.
Looking to next week, focus will shift to the Federal Reserve as markets await the highly anticipated decision by the central bank’s Federal Open Markets Committee on monetary policy. Markets are currently pricing a 77 percent chance that the Fed will raise its benchmark policy interest rate for the fourth time this year according to the futures market implied probability.
In general, Gold has an inverse relationship with interest rates due to the precious metal not yielding any cash flows like debt instruments. Higher rates result in weakened demand for the commodity as alternative assets such as US Treasuries provide a higher rate of return. If the Fed surprises markets and pauses next week or makes any material downward change to the Fed’s dot-plot, gold could ascend quickly on back of lower future interest rate expectations.
Eyes will also closely watch for the release of several key economic indicators out of America next week. If actual results miss expectations, risk-off sentiment should continue and further boost demand for gold. However, fears over a slowing global economy will incite further rotation of capital from stocks to bonds with investors flocking to the safety of US Treasuries.
For a list of global economic events and data releases, check out our real-time Economic Calendar.
As international buying of Uncle Sam’s bonds increases, foreigners must convert their currency into US Dollars. This drives up demand for the Greenback which becomes a headwind for gains in gold due to the inverse relationship between the two assets.
A third key driver to take note of that will determine gold’s next move higher or lower will be the performance of the Chinese Yuan. As the damaged Asian economy continues to experience downward pressure amid worsening economic data due to the ongoing trade war with the United States, the Dollar may appreciate further against its Chinese counterpart.
The importance of USDCNY to gold is seen in their strong negative correlation. Trade talks between the world’s largest economic powerhouses will largely drive returns for the currencies with the CNY benefiting from any progress President Xi can make with President Trump towards de-escalation tension or reaching a deal.
Due to the mixed event risks and waning bullish technical indicators, the forecast for XAU will be neutral over the week of December 17. Take a look at client sentiment for insight on client positioning and trader bearish or bullish biases.
–Written by Rich Dvorak, Junior Analyst for DailyFX
–Follow Rich on Twitter for real time market updates @RichDvorakFX
Other Weekly Fundamental Forecasts:
Euro Shorts in Charge on Tri-break
EUR/USD Technical Highlights:
- Triangle finally broke, has Euro rolling downhill
- November low, Nov ’17 t-line initially targeted
- Must be cautious once at support, may put in floor
Let us help you. DailyFX has guides ranging from forecasts to trade ideas to education all in one location – DailyFX Trading Guides.
Triangle finally breaks, has Euro rolling downhill
Friday’s breakdown finally put the Euro outside of the triangle it had been forming over the course of the past month. It’s been an anticipated event, but confirmation was needed first before running with a more aggressive short bias.
Looking lower there is support not too far away. First up is the November low at 11215, followed by the lower trend-line extending over from November of last year; resides around roughly 11180. The way EUR/USD has been trading we’ll want to pay close attention to how it reacts once support is met.
The moves over the past few months haven’t been sustained for very long and this could be another unsustainable drive lower. With that in mind, from a tactical standpoint if the Euro starts to turn up from one of the aforementioned levels then it may be best to call it a wrap as a quick counter-trend bounce could develop.
If, however, selling pressure increases and a break below support unfolds, then perhaps a little momentum may kick in towards near 11100 or worse. It seems unlikely we will see too much power given not only the Euro’s behavior in past months but also because there is only about a week left in the year of full market participation before we go into ‘holiday’ mode. However, even as such, watch and follow the price action first.
Traders are generally long EUR/USD, see the IG Client Sentiment page to see how this acts as a contrarian indicator and is supportive of lower prices.
EUR/USD Daily Chart (Levels, lines to watch)
EUR/USD 4-hr Chart (Triangle broke Friday morning)
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at@PaulRobinsonFX
Other Weekly Fundamental Forecast:
Price Rally Pulls Back ahead of FOMC
Gold Weekly Technical Outlook: Price Rally Pulls Back ahead of FOMC
In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend.Gold prices snapped a three-week winning streak with the precious metal off by nearly 1% ahead of the New York close on Friday. Here are the key targets & invalidation levels that matter on the Gold (XAU/USD) weekly chart heading into the close of the year.Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide
Notes:In my most recent Gold Technical Outlook we noted that price was, “responding to up-slope resistance and while we could see some near-term weakness, the focus remains higher while above within this formation” (channel formation in red). Gold is testing near-term support into the close of the week at 1234/36 where the 2017 December low converges on the 200-week moving average with more significant support seen at 1216/21– a region defined by the December open, the 38.2% retracement of the August advance and basic channel support. A break here would risk a larger setback with such a scenario targeting broader bullish invalidation at the yearly low-week close at 1184.
Initial resistance stands at the 50% retracement of the yearly range at 1263 with a breach above the highlighted slope confluence at 1270 needed to validate a larger reversal in price targeting 1287 and the 2018 open at 1302.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
The immediate threat remains for a deeper pullback IF price slips below 1234 but the medium-term focus remains higher while above 1216. From a trading standpoint, look for weakness to offer more favorable entries lower down near slope support.
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Gold Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long Gold – the ratio stands at +3.55 (78.0% of traders are long) – bearish reading
- Long positions are 1.4% higher than yesterday and 5.8% higher from last week
- Short positions are 2.0% lower than yesterday and 4.9% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com
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