AUD/USD Forecast Dec. 1-5

The Australian dollar continues to tumble, as AUD/USD  lost close to  200 points. The pair closed the week  at the 0.85 line, its lowest level in over four years. The upcoming week is a busy one, with over 14 readings. Here is an outlook on the major market-movers and an updated technical analysis for AUD/USD.

It was a mixed week for Australian data, as construction data slipped, while private sector spending beat expectations.  The large batch of US data before Thanksgiving was largely disappointing: durable goods orders were mixed,  unemployment claims missed the estimate,  and housing numbers softened. Despite the weak numbers, the US dollar had no trouble posting strong gains against the Aussie.

AUD/USD graph with support and resistance lines on it. Click to enlarge:

1. AIG Manufacturing Index: Sunday, 22:30.  The index continues to point to ongoing contraction, with just one reading above the 50-point level in 2014. The previous release came in at 49.4 points.
2. MI Inflation Gauge: Sunday, 23:30. The indicator, a minor event, continues to point to weak inflation. The October reading showed a small gain of 0.2%, and no significant change is expected.
3. Company Operating Profits: Monday, 00:30. This indicator is posted each quarter, magnifying the impact of each release. The indicator looked awful in Q2, posting a decline of 6.9%.  This was well short of the estimate of -1.8%. Another decline is expected in Q3, with an estimate of -1.2%.
4. Chinese Manufacturing PMI: Monday, 1:00. The Aussie is sensitive to key  Chinese data, as the Asian giant is Australia’s largest trading partner. The PMI continues to hover just above the 50-point line, which indicates slight expansion in the manufacturing sector. The previous reading came in at 50.8 points, and little change is forecast for the November reading.
5. Chinese HSBC Final Manufacturing PMI: Monday, 1:45. In the second half of 2014, the PMI has been very steady, with readings  just above the 50-point level. The estimate for the  upcoming release stands at 50.0 points.
6. Commodity Prices: Monday, 5:30. Commodity Prices continues to post declines, as global markets remain sluggish, hurting Australian exports. The indicator has posted two straight declines of close to 17%.
7. Building Approvals: Tuesday, 00:30. Building Approvals is marked by sharp volatility, leading to readings that are often well off the estimates. This was the case in the September reading, which tumbled by 11.0%. This was much lower than the forecast of -0.9%. The markets expect a strong turnaround in the upcoming release, with the estimate standing at 5.2%.
8. Current Account: Tuesday, 00:30. This indicator is released each quarter, magnifying the impact of each release. The deficit ballooned to A$13.7 billion in Q2, compared to A$5.7 billion in Q1. Little change is expected in the Q3 reading, with an estimate of A$13.5 billion.
9. Cash Rate: Tuesday, 3:30. The benchmark interest rate is expected to remain at 2.50%, considered very low by Australian standards. The RBA will make the announcement in a rate statement.
10. AIG Services Index: Tuesday, 22:30. The index continues to stumble with readings below the 50-point level, pointing to contraction in the services sector. No significant change is expected in the upcoming release.
11. GDP: Wednesday, 00:30. GDP is one of the most important economic indicators and can have a major impact on the movement of AUD/USD. The Q2 release showed a gain of 0.5%, edging above the estimate of 0.4%. The estimate for Q3 stands at 0.7%.
12. Retail Sales: Thursday, 00:30. This key event is the primary gauge of consumer spending. The indicator posted a strong gain of 1.2% in October, crushing the estimate of 0.3%. The markets are bracing for a much weaker November, with a forecast of just 0.1%.
13. Trade Balance: Thursday, 00:30. Australia continues to post trade deficits, and the October reading of A$-2.26 billion was larger than the estimate of A$-1.78 billion. The estimate for the upcoming release stands at A$-1.81 billion.
14. AIG Construction Index: Thursday, 22:30.This minor event softened in October to 53.4 points, marking a 3-month low. The index has remained above the 50-point level in the second half of 2014, pointing to expansion in the construction sector.

* All times are GMT.

AUD/USD Technical Analysis

AUD/USD  started the week  at 0.8680  and  rose  to a  high of 0.8700, as resistance held firm at 0.8750 (discussed last week).  It was sharply downhill after that, as the pair dropped all the way to 0.8480. AUD/USD closed the week at 0.8501.

Live chart of AUD/USD: [do action=”tradingviews” pair=”AUDUSD” interval=”60″/]

Technical  lines from top to bottom:

With the Australian dollar sustaining sharp losses, we begin at lower levels:

The round number of 0.9000  is a strong resistance line. It has remained intact since mid-September. 0.89o8 is the next line of resistance.

0.8750  held firm and is a strong resistance line.

The pair easily broke through 0.8660, which has switched to a resistance role.

0.8550  was breached and begins the week as an immediate resistance line.

0.8456 has held firm in support since July 2010, but finds itself under strong pressure. Will the pair break through this week?

0.8316 is a strong support line. It marked the start low point of a US dollar rally in July 2010, which saw the greenback climb above the 1.10 level.

0.8150 has remained intact since September 2007.

0.8013 is the final support line for now. It is the last barrier in front of the psychologically critical line of 0.8000.

I  remain bearish  on AUD/USD.

The Aussie is clearly in a free-fall, and could continue to lose more ground if this week’s key events, led by GDP, fail to meet expectations. Market sentiment remains high on the US economy, which continues to outperform that of Australia.

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