AUD/USD Forecast: nearing critical mid-term support

• AUD/USD resumed its decline, trimmed in one week the gains of the previous three.
• Chinese data and trade tensions with the US weighed on the Australian currency.

The Australian dollar neared its yearly low Friday, ending the week in the 0.6870/80 region. Risk aversion and encouraging dollar data were behind the pair's decline, in spite of the market is pricing in an upcoming rate cut in the US.

Australia released this week its May employment figures and, despite the impressive headline, the local currency fell. The economy created 42.3K new jobs, yet a more in-depth read of the report indicates that 39.8K of those were part-time jobs, with only 2.4K full-time new positions. The unemployment rate remained steady at 5.2% vs. the market's expectations of 5.1%. Finally, the participation rate increased to 66.0% from 65.9%. The lackluster report maintains the pressure on the RBA, looking to drive down unemployment and boost inflation. Also, and as a result of RBA's rate cut in the previous week, the Westpac Consumer Confidence index collapsed in June, diving to -0.6% after printing 0.6% in May. The NAB monthly survey showed that business conditions fell to their lowest in six years, with the index down to 1 point in May, although Business Confidence recovered, with the index up to 7 vs. the previous 0.

The Chinse macroeconomic calendar was also quite busy, with the country publishing its May trade figures. The trade surplus in dollar terms more than doubled the market's expectations reaching $41.65B, as imports increased by 7.7% while exports fell by 2.5%. Inflation in May came in as expected, up to 2.7% in YoY, while New Loans in the same month were better than in April but below the market's expectations, up by 1,180B. Early Friday, China released May Retail Sales and Industrial Production, with this last missing the market's expectations, adding pressure on the Aussie.

These upcoming days, the US Federal Reserve monetary policy meeting will be the most relevant event, scheduled for Wednesday. Speculative interest will be looking to confirm that policymakers have somehow dropped the 'patient' stance and are now more willing to proceed with a cut. A more hawkish outcome would highlight the imbalances between the Fed and the RBA and result in further weakness in the pair.

In the Asian side of the pair, the macroeconomic calendar will be utterly light, as there're just some minor Housing data scheduled in Australia and China on Tuesday. The same day, the RBA will release the Minutes of its latest meeting, although most of their content has already been communicated.

AUD/USD Technical Outlook

The AUD/USD pair is trading near the 0.6865 support, a multi-month low from where it bottomed twice these last few days. The pair lost this week what it gained in the previous three, a sign of bears' determination. In the weekly chart, technical readings favor additional declines, as its trading far below all of its moving averages, while technical indicators resumed their declines within negative levels.

In the daily chart, the pair settled below a directionless 20 DMA, while the larger ones retain their bearish slopes above this last. Technical indicators have crossed their midlines into bearish territory, retaining their bearish slopes and anticipating further slides ahead. 0.6865 is the immediate support, followed by 0.6820, a long-term static level. A break below this last seems likely with a hawkish surprise coming from the Fed, with the pair then heading toward the 0.6740/70 price zone. Resistances, on the other hand, are located at 0.6900, 0.6940, and 0.7000.

AUD/USD sentiment poll

The AUD/USD pair will likely extend its decline next week, according to the FXStreet Forecast Poll which shows that sentiment toward the pair remains bearish short-term. In the one month and three months views, however, bulls are a majority. In both cases, the average target comes below 0.7000, somehow indicating that the expected decline is related to the dollar's weakness and not sudden demand for the Aussie.

The moving averages in the Overview chart are bearish in the three timeframes under study, and in the three cases, with the largest accumulation of targets below the current level, keeping the risk skewed to the downside.

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