AUD/USD Forecast: bulls getting more courageous, but trade war in the way

• Australian dollar advanced for a second consecutive week despite soft local news.
• AUD/USD upward move to suffer a challenge if 0.7250 reached.

The AUD/USD pair advanced for a second consecutive week, although the advance was capped by a strong Fibonacci resistance, the 61.8% retracement of the early October slump. Despite risk sentiment and a firmer dollar following US FOMC Meeting's Minutes release, the pair met buyers on attempts to break below the 0.7100 figure, somehow suggesting that bears have lost the grip.

Data coming from Australia was mixed, with nothing strong enough to back Aussie's strength. The Reserve Bank of Australia released the Minutes of its latest meeting, in which policymakers decided to maintain the cash rate at a record low of 1.5%, showed that policymakers are concerned that lending conditions could tighten further as the royal commission into the financial services sector continues. "Members noted that it would be important to monitor the future supply of credit to ensure that economic activity continued to be appropriately supported," the document stated. Furthermore, the Australian Westpac–Melbourne Institute Leading Index released Wednesday is still pointing to growth slowdown, despite rising above trend. The six months annualized growth rate was up from –0.02% in August to +0.21% in September.

The country also released September employment data, which showed that employment increased by only 5,600 jobs, well below market's forecast of 15K, while the jobless rate fell to an almost seven-year low of 5% The participation rate, however, fell from 65.7% to 65.4%, its lowest level in 11 months. Such level of unemployment is within RBA's comfort range.

Chinese data released through the week was mixed, with the most notable Q3 GDP down to 6.5% from the previous 6.7%. And talking about China, tensions between the country and the US are, unfortunately, back in fashion, after US President Trump economic advisor, Larry Kudlow, said that Trump is willing to meet Xi Jinping, at the G-20 meeting next month in Argentina, although always taking into account that China is an unreliable negotiating partner. Kudlow also said that "China has not responded positively to any of our asks."

Both countries, Australia and China will have quite scarce macroeconomic calendars, with only a private measure of consumer confidence scheduled. Sentiment, through equities, and trade war headlines are set to lead the way.

AUD/USD technical outlook

In the weekly chart, the negative trend remains firmly in place, with the latest advance being a mere corrective, as technical indicators continue heading nowhere within negative ground, closer to oversold readings than to their midlines. In the mentioned chart, a firmly bearish 20 SMA stands over 200 points above the current level. A strong static resistance area comes at 0.7250, and the upside could look a bit more constructive on a break above it.

In the daily chart, the pair is battling to overcome a bearish 20 DMA, far below the larger ones and also struggling with the 50% retracement of the October slide, a level that pressured all through the week. Technical indicators aim higher, with the Momentum already above its mid-line but the RSI struggling with the 50 level, somehow leaning the scale to the upside without confirming it yet. The 0.7160 level is the immediate resistance ahead of the mentioned 0.7250, with a break above it exposing the 0.7320/40 price zone. Supports come at 0.7095 and 0.7040, this last the yearly low, with a break below it exposing 0.6920.

 

 

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the Aussie is the only currency that could advance against the greenback next week, with bulls up at 58% down from 67% in the previous week, and with the average target little changed, at 0.7137 from the previous 0.7120. In the monthly view, the bullish sentiment eased further, as the pair is now neutral, although bulls could take over again the longer perspective. Still, in the 3 time-frames under study, the average target remains below the critical 0.7250 level. The Overview chart shows that the three moving averages maintain neutral-to-bearish slopes. Worth of mention in the 3-month perspective, a break below 0.7000 seems likely amid a large number of possible targets below the current level.

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