A$ Stuck in a rut, which bulls will gladly take (for now)

The Australian Dollar’s decline has been thrown a lifeline by nervous Greenback bulls. For now, the bulls can breathe a sigh of relief, but the downside looms.

Greenback is in the driving seat:

As long as the USD Index continues to correct from the 4-year highs then I expect to see A$ stuck within the 0.864-89c range. The choppy sideways trading between these levels has become predictably predictable, yet likely to punish any trend trader seeking to jump the gun prior to a breakout. With domestic news relatively light next week then the US is likely to dictate any sustainable, directional moves, with Thursday providing FOMC statement, Advance GDP and unemployment claims. A strong GDP and unemployment remaining near 14-year lows should see the Aussie at the bottom of the range to test 4-year lows.

Of course, any soft figures from the US should keep A$ comfortably within range and for choppy trading to continue, but the larger picture remains bearish for A$. The fact remains that USD bulls remain long just below record levels (according to data from CFTC) and Australian Dollar Futures remain Net short. And again the words ‘rate cut’ are resurfacing from A$ bears which is likely to bring further downside pressure on the A$, in line with weaker commodity prices.

Domestically: Awaiting November’s Data Dump

This week, Inflation hardly inflated, and policy minutes have provided little interest for traders. Next week is also relatively quiet until Thursday’s Import prices and Friday’s PPI, so we’ll need to until November for domestic data to have its say. Retail Sales, Trade Balance, Cash Rate, Employment Data and Fiscal Outlook should be enough to help provide a directional move, with my guesstimate being to the downside.

The Bigger picture:

The argument for a higher A$ powered by a hunt for yield has been wearing thin for some time, and people seem to forget that before the GFC many traders ignored the A$ and NZ$ despite much higher interest rates. I strongly suspect that when the US economy is back on track and interest rates do begin to rise, we can expect significant outflows from Australia and New Zealand resulting in A$ trading back within the 70-80’s range.

Technically: Range trading preferred until a clear breakout has been confirmed

We appear on track to complete a 3rd week of 'indecision' represented by Inverted Hammers (potential bullish bias) or Bearish Pinbars (confirmed with a break below 0.864). The fact that this week is well within the prior 2 week's range demonstrates a further hesitency to commit from either camp, so I think it is unlikley to break outside of the 86.40-89c range until November.

Intraday price action continues to ricochet between previously visited level, lulling traders into thinking a new move is unfolding before promptly reverseing. Under these conditions I prefer to stick to lower timframesw (such as 5 minute, or 15 minute) or step aside until a breakout has been achieved.