The AUD Could Be Setting up for Decent Slump this Week

Key Points:

• Fundamentals rather weak

• Double top seemingly forming on the daily chart.

• Plenty of news due out this week.

The Aussie Dollar’s recent uptrend may be coming to an end this week as it looks as though a double top is forming on the daily chart. Additionally, a number of other technical and fundamental factors are signalling that the pair is destined for a tumble in the coming days. However, first of all it might be worth looking at what brought the AUD to where it is now.

Last week got off to a fairly torrid start for the AUD with the Australian Retail Sales posting a 0.1% m/m contraction. This negative sentiment carried through to the subsequent session, in which, the RBA elected to hold the Cash Rate steady at 1.50% which came as little surprise to the market. However, contrary to the broader market trend, the Aussie Dollar rebounded strongly later in the week as the reserve bank used the Monetary Policy Statement to skilfully downplay rising fears that the nation is already in, or could soon be facing, a recession.

On the technical front, the AUD had some strong underlying bullish sentiment but this could be about to abate as a result of what looks like a double top beginning to form.  Moreover, the current zone of resistance has proven to be a rather difficult one to crack historically which should be an additional impediment to further gains moving forward. The main dissenting technical signal is the EMA bias which is patently highly bullish. Luckily, the MACD oscillator is showing some evidence of a signal line crossover which suggests that this uptrend is likely about to come to an end.

As for what lies ahead in the news, the coming week is rather data rich which should provide the requisite fuel for some strong moves. In the first half of the week, the NAB Business Confidence and Westpac Consumer Confidence figures are due out which could help to set the tone for the rest of the week. However, it is Thursday’s employment data that will truly be in focus as, if another uptick in unemployment is seen, the RBA will have a hard time defending its stance that the country is unlikely to see a recession take hold.

As a result of all of this, it seems all it will take is some vaguely weaker Australian results to send the pair lower in the near-term. More precisely, given the rather weak technical and fundamental position the AUD is in, it could be overvalued at present. As a result of this, downside risks could be fairly substantial which is worth keeping a close watch on.