AUD/USD Forecast: developing a double bottom, but bulls cautious

  • Trade war jitters cap Aussie's chances of a firmer recovery.
  • AUD/USD recovery could extend on a break above 0.7237.

The Australian dollar gained against its American rival this past week, poised to finish it above the 0.7100 level, after a retest of the yearly low in the 0.7040 level. The AUD/USD pair was trapped between two fires, as dollar's broad weakness should have pushed the pair higher, but the potential was capped by collapsing equities. Dollar weakness weighed more at the end, as US President Trump charged on the Fed once again, sending US Treasury yields down from multi-year lows. A strong comeback in gold prices, which broke its break to the upside and surged to their highest since July, added to Aussie's recovery.

The Australian macroeconomic calendar offered no big surprises, as the Australian Melbourne Institute consumer inflation expectations' gauge remained at 4.0% in October, matching September's result. On a positive note, the NAB's Business Confidence Index surged in September, amid positive views from all sectors.

Bulls, however, remain cautious after a revival of trade tensions between the US and China and seems this last will set the tone for the Aussie next week, as China will have a busy macroeconomic week, unveiling first-tier figures such as inflation, retail sales, and industrial production. In Australia, the most relevant event will be the release of September employment data next Thursday, while the RBA will publish its latest meeting´s Minutes on Tuesday.

AUD/USD technical outlook

The AUD/USD pair bounced strongly after flirting with its yearly low, forming a possible double bottom figure, although, by the end of the week, it's struggling with the neckline of the figure. The pair has managed to recover above the 38.2% retracement of the previous week slump, with the 50% retracement of the same slide a handful of pips above the current level and being the main resistance to break to confirm more recoveries ahead for next week.

In the weekly chart, however, the bearish trend remains firmly in place, as technical indicators remain well into negative territory, while the pair remains far below all of its moving averages, with the 20 SMA still heading strongly south over 200 pips above the current level. In the daily chart, the latest advance seems also corrective, as the price remains below a bearish 20 DMA, which stands some 50 pips above the current level, while technical indicators have lost upward strength within negative levels after correcting oversold conditions. For the upcoming days, the key to the upside will be 0.7237, the high posted this month, with gains beyond it favoring an approach to the 0.7130 region. A break through the yearly low of 0.7040 should signal a steeper decline, with 0.6920 coming as a possible bearish target for next week.

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the AUD/USD pair is set to recover modestly during the upcoming weeks, seen bullish in the three time-frames under study. For the upcoming week, bulls account for 67% with the average target, however, at 0.7120. Bulls equal 57% in the 1 and 3 months views, with the average targets below the critical 0.7250 resistance. The Overview chart, however, shows that the negative trend persists, with a modest bounce in the shorter moving average far from enough to signal an interim bottom.

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