Australian Dollar Talking Points
AUD/USD extends the decline from earlier this week amid waning hopes for an imminent US-China trade deal, and the exchange rate appears to be on track to test the 2019-low (0.6671) as it carves a fresh series of lower highs and lows.
AUD/USD Eyes 2019-Low as China Pledges to Retaliate to US Blacklist
The recent rebound in AUD/USD continues to unravel as China signaled it would retaliate against the Trump administration for blacklisting 8 tech companies, with China’s Foreign Ministry spokesman, Geng Shuang, urging the US to “immediately correct its mistake, withdraw the relevant decision and stop interfering in China’s internal affairs.”
During the press conference, Mr. Shuang went on to say that “the US violates the basic norms governinginternational relations, interferes in China’s internal affairs and undermines China’s interests,” and the comments suggest the trade talks starting on October 10 will bear little fruit as the Foreign Ministry pledges to “take resolute and powerful measures to safeguard our sovereignty, security and development interests.”
Signs of a prolonged US-China trade war may encourage the Reserve Bank of Australia (RBA) to further insulate the economy, and the central bank may continue to embark on its rate easing cycle as the board remains “prepared to ease monetary policy further if needed.”
The RBA may continue to push monetary policy into uncharted territory as the central bank gauges the effective lower bound (ELB) for the official cash rate (OCR), and it seems as though Australian policymakers will have little choice but to deploy non-standard measures as Governor Philip Lowe insist that unconventional monetary policy tools (UMPTs) “have proved to be an effective addition to central banks’ policy toolkit.”
With that said, it remains to be seen if the RBA will deliver another 25bp rate cut at the next meeting on November 5as Governor Lowe pushes for “a renewed focus on structural measures to lift the nation’s productivity performance,”but the Australian Dollar may face a more bearish fate over the remainder of the year as the central bank continues to combat the weakening outlook for the Asia/Pacific region.
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AUD/USD Rate Daily Chart
Source: Trading View
- Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6982), with the exchange rate marking another failed attempt to break/close above the moving average in July.
- More recently, AUDUSD has taken out the September-low (0.6688) following the RBA meeting, with the Relative Strength Index (RSI) offering a bearish signal as the oscillator snaps the bullish formation from August.
- Lack of momentum to hold above the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6740 (38.2% expansion) brings the 0.6690 (50% expansion) region on the radar, but the string of failed attempts to close below the stated level raises the risk for range-bound conditions.
- Need a close below 0.6690 (50% expansion) to open up the Fibonacci overlap around 0.6620 (100% expansion) to 0.6640 (61.8% expansion), with the next area of interest coming in around 0.6580 (78.6% expansion).
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— Written by David Song, Currency Strategist
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EUR/GBP May Rise if Brexit Hopes Continue to Fade
British Pound Outlook, Brexit, GBP/USD Technical Analysis – Talking Points
- British Pound may reverse recent gains if Brexit perils undermine confidence
- UK members of Parliament will be voting on Boris Johnson’s new Brexit plan
- Will DUP derail Johnson’s plan, and if so, will there be yet another extension?
Learn how to use political-risk analysis in your trading strategy!
The Euro may edge higher against the British Pound if hopes for an orderly Brexit continue to dissolve. On October 17, UK Prime Minister Boris Johnson and European Commission President Jean-Claude Junker jointly announced that a Brexit deal had been reached. Sterling rallied on the news, though its upside movement was curtailed by news that the Irish Democratic Unionist Party (DUP) would not support his plan.
Securing their support is essential if Mr. Johnson wants to pass a deal through the House of Commons. If he fails to do so, it could severely derail plans for an orderly Brexit which would likely see the British Pound reverse a significant portion of its recent gains. However, EU Council President Donald Tusk has not ruled out the possibility of an extension if lawmakers failed to agree on a deal on Saturday.
In Parliament there are currently 287 voting conservative lawmakers which Mr. Johnson will need if his proposal is to survive. He may also have to lean on over 20 former Tory MEPs who switched over to become independents. However, that may not be enough votes which may compel the PM to ask for help across the political aisle.
Market Analysis of the Day: Will the British Pound Reverse its Recent Gains?
GBP Index chart created using TradingView
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter
Australian Dollar Firm After China GDP Miss But Trend Aims Lower
CHINA, GDP, TRADE WAR, AUSTRALIAN DOLLAR – TALKING POINTS:
- 3Q Chinese GDP registers narrowly worse than expected at 6.0% y/y
- Industrial production data, US trade talks may have offset the headline
- Australian Dollar little-changed but overall trend still pointing lower
Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!
The Australian Dollar found little of interest in mildly disappointing Chinese GDP data. The figures put the on-year growth rate at 6 percent, a hair lower than the 6.1 percent expected by economists. Nevertheless, this marks the slowest pace of expansion in at least 27 years.
Upbeat industrial production readings might have helped offset a soggy headline figure. The rate of on-year growth unexpectedly jumped to a three-month high of 5.8 percent. Early signs of stabilization in retail sales figures may have helped as well.
The report’s limited implications for larger macro themes dominating investors’ attention may likewise explain the tepid response. Extrapolating a view on future Chinese growth seems nearly impossible without greater clarity on trade negotiations with the US, making today’s release appear somewhat moot.
Assessing the broader landscape, choppy AUD/USD consolidation since early August leaves firmly intact a well-defined downtrend established from late December 2018. Prevailing monetary policy trends suggest it is likely to continue, with longer-term charts setting the stage for deep losses in the months ahead.
Daily AUD/USD chart created with TradingView
AUD/USD TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
USD/JPY Rate Faces Bearish Reversal Pattern Amid Brexit Deal Hopes
Asia Pacific Market Open Talking Points
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AUD/USD, NZD/USD Climb as Japanese Yen and US Dollar Sink
The sentiment-linked Australian Dollar and similarly-behaving New Zealand Dollar soared against their major counterparts on Thursday. This was at the expense of the anti-risk Japanese Yen and haven-linked US Dollar. A rosy mood in stock markets, fueled by hopes of a Brexit deal, could have been the source of optimism from investors as the S&P 500 closed 0.28 percent to the upside.
During European trading hours, European Commission President Jean-Claude Juncker and UK Prime Minister Boris Johnson announced that a Brexit deal has been reached. However, optimism receded after officials from the Democratic Unionist Party (DUP) saying that they would not support Johnson’s agreement. Their support is crucial for Mr Johnson to pass his deal in Parliament perhaps on Saturday.
Still, the British Pound and Euro aimed nervously higher despite giving up some losses. Disappointing economic data out of the United States also likely fueled their gains against the US Dollar. Local industrial production unexpectedly declined 0.4 percent m/m in September versus -0.2% anticipated. US front-end government bond yields traded lower as markets kept their hopes up for further Fed easing.
Friday’s Asia Pacific Trading Session
Ahead, the Australian Dollar will be closely watching incoming third quarter Chinese GDP data after rosy local jobs data offered AUD/USD a boost. Data out of China has been tending to underperform relative to economists’ expectations, opening the door to a continuation of the trend. As a China-liquid proxy, the Aussie could reverse recent gains should weakness in growth from a close trading partner spread slowdown fears.
Join me later today at 1:45 GMT for LIVE coverage of China GDP where I will be going over the reaction in the Australian Dollar!
Meanwhile, the Japanese Yen will likely look past a set of local CPI data due to its limited implications for near-term BoJ policy action. Rather, it may focus more on China GDP and the mood in regional stock exchanges. S&P 500 futures are little changed with a slight downside bias heading into Friday’s APAC session. A bittersweet mood from investors may boost the Yen.
Japanese Yen Technical Analysis
The USD/JPY could be in the process of carving out a rising wedge candlestick formation. This is typically a reversal pattern and if so, may down the road open the door to downtrend resumption – as outlined in my Q4 USD/JPY forecast. As such, the latest test of the ceiling of the Rising Wedge may pave the way for a test of the floor which goes back to the end of August – red area on the chart below.
Chart of the Day – USD/JPY
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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
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