In my last article, I was bearish on the Australian Dollar (FXA, AUDS), as I expected it to fall against the U.S. Dollar (UUP) till the 100% fibonacci support level at 0.7042. This came true as the Aussie Dollar on 26th October breached the 0.7042 mark, which resulted in it having a low of 0.7020. Moreover, once it descended to the projected level the Australian Dollar had a strong bullish reversal which resulted in it rising till the 0.7290 mark. However, I now expect the bullish party to come to an end in the next one to two sessions. Hence, to establish the likelihood of this occurring, I will look at the fundamental news affecting the pair, whilst, also analyzing the charts using technical analysis tools.
The latest set of Australian statistics place a great deal of bearish pressure on the Aussie Dollar. I say that as New Home Loans in September fell by 1% on a month-on-month basis. The statistic was worse than expected as analysts had forecasted a drop of 0.9%. Moreover, there was also a drop in the level of investment housing loans, as the statistic fell by 2.8% on a month-on-month basis. This is bad news for the Aussie Dollar as a lower than expected reading in both statistics increases the bearish pressure on the currency.
Reserve Bank of Australia:
The Reserve Bank of Australia released a statement on its monetary policy and it was packed with surprises. I say that as the RBA statement raised concerns about the drop-in household income and the severe risks to general consumption. Moreover, the RBA statement also exhibited concerns over the ongoing trade war between China and the United states. This is as it is triggering a higher level of downside risk to investor confidence and the Australian economy. Thus, due to the RBA statement raising so many concerns, I expect the bearish pressure on the Aussie Dollar to increase as investors will be warier about the future of Australian economy.
The latest set of statistics released by the Department of Labor are excellent. This is as the Producer Price index rose by 0.6% on a month-on-month basis, against an anticipated growth rate of 0.2%. Moreover, the Food and Energy Price Index rose by 0.5% on a month-on-month basis, against a forecasted level of 0.2%.
Likewise, the latest set of statistics released by the University of Michigan and the Census Bureau were also extremely positive. I say that as Wholesale Inventories rose by 0.4%, which surpassed analysts’ estimates as they had it pegged at 0.3%. Lastly, the Michigan Consumer Sentiment Index improved as the analyst forecasted level stood at 98.0, whilst the actual value came in at 98.3. Overall, these statistics are one of the key reasons I am bullish on the U.S. Dollar. This is as all of them are rising which in turn will boost confidence levels.
The pair’s daily chart indicates that in the coming days the Australian Dollar will be falling against the U.S. Dollar. This is due to the Aussie Dollar forming a “Tweezer Top” candle pattern which received bearish confirmation from a large bearish candle. The Tweezer Top pattern indicates to investors that the tide of the market has changed from one in which the bulls were in control, to one in which the bears are calling the shots. Moreover, as the pattern received bearish confirmation, thus, I am confident that there will be a bearish continuation in the coming days. Furthermore, the pattern has formed at the 161.8% fibonacci resistance level at 0.7254. This in turn places the final nail in the bull’s coffin.
On the price target front, I expect the Australian Dollar to fall till the range between the 100% and 127.2% fibonacci support levels. The 100% fibonacci support level is at 0.7164, whilst, the 127.2% fibonacci support level is at 0.7126. However, if the Aussie Dollar does breach the 127.2% fibonacci support level, then I do not expect the fall to go beyond the 161.8% fibonacci support level at 0.7079.
The pair’s weekly chart indicates that the Australian Dollar is facing some tough resistance. The reason behind this thought of mine is due to the formation of a “Shooting Star” candle pattern. This candle pattern displays a trading session in which the market rallied but then failed to hold onto the higher levels. Moreover, the candle pattern has formed at the 100% fibonacci resistance level, which provides further bearish confirmation. Lastly, we see that the candles of the last two sessions have failed to break above the 20-day moving average. This in turn provides further bearish confirmation as it shows a severe level of weakness in the bullish trend.
The Big Picture:
Overall, I am leaning towards the bears pushing the value of the Australian Dollar to the 0.7290 mark. This is driven by the fact that the technicals fully support a descent in the currency's value till that point. However, whichever way you decide to trade, do ensure that you utilize trailing stops, as this shall aid in capital preservation.
Good luck trading.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.