USD/JPY Forecast: Chipping away at 23.6% Fib hurdle, caution advised

USD/JPY pair rebounded from the September high support of 104.32 in the Asian session on Thursday and climbed to a high of 105.35 by late NY session. Data released in US showed durable goods orders declined in September. Orders for nondefense capital goods excluding aircraft, a rough proxy for business investment, fell 1.2% in September, after posting three straight months of gains. However, the data failed to weaken the US dollar as expected, given the bar of expectations was already set very low.

Focus on US GDP

US economy has grown by less than 2% since the third quarter of 2015. As per forecasts, the economy is expected to have grown by 2.5% in Q3. However, the upbeat trade data and housing data released earlier this week has boosted expectations. Many in the market say the economy could have grown at a rate of 3%. That would be the best rate in two years.

Note that Dollar has been solidly bid since Wednesday on heightened expectations of a blowout figure. That means, a strong data is more likely to have been priced-in already. Hence, for the pair to extend gains further, US GDP would have to beat the estimates by a healthy margin. A GDP print at or above 3% would be able to push the pair higher to key resistance of 105.83 (monthly 200-MA).

On the other hand, the spot could see a technical correction if the GDP prints weaker-than-expected. An in-line with expectations figure too could lead to a technical correction on 'sell the rumour' trade, given the bird has already priced-in an upbeat figure.

Technicals – Correction to 5-DMA cannot be ruled out

Weekly chart

• Wednesday’s bullish break close above the September high of 104.32 followed by a sharp rise to 105.35 (23.6% of May 2015 high - June 2016 low) suggests the bulls remain in control and there is still enough room for a further rally to monthly 200-MA level of 105.83, given the daily RSI is still yet to hit the overbought territory.
• However, a repeated failure to take out 105.35 (23.6% Fibo) could yield a minor corrective move to 5-DMA level of 104.66. The corrective move could be extended to 10-DMA support around 104.20 if the US data disappoint market expectations.

AUD/USD Forecast: rising trend line 0.7504 could be put to test

Daily chart

• Pair’s outside day/bearish engulfing pattern on Oct 20 followed by an evening star formation this week suggests the spot is likely to test support at 0.7504 (rising trend line coming from Jan 2016 low and May 2016 low).
• Also note, the retreat from the weekly high of 0.7709 marked another failure to capitalize on a break above 0.77 handle… something has repeatedly happened since mid August.
• On the higher side, only a daily close above 0.7709 (weekly high) would suggest the continuation of the uptrend from Sep 13 low of 0.7442.

NZD/USD Forecast: Forming head and shoulder on daily chart

Daily chart

• Failure at 0.7184 (Wed high) followed by a retreat to 0.7122 on Thursday kept the larger downtrend from 0.7267 intact, thus suggesting the pair could extend losses to key support around 0.7045 (head and shoulder neckline).
• A daily close below 0.7045 would also mark a breach of the rising trend line coming from Jan low and May low. Moreover, such a move would signal a major trend reversal.
• On the higher side, only a daily close above 0.7184 would signal bearish invalidation and open doors for a revisit to 0.7250 levels.