AUD/USD: inverted hammer could play out, but bulls still active at 0.72 handle

• AUD/USD consolidating solid gains made at the end of last week.
• RBA, Chinese trade and US midterms are major risks.

AUD/USD has been consolidating around the vicinity of the 0.72 handle after last week’s impressive breakout and test of the daily trend line resistance. However, there is less scope for further upside much beyond these levels while Chinese growth concerns continue to play out. We had yet further weak data from China overnight in the form of Caixin Services PMI that came in at 50.8 vs the 53.1 previous.

The trade war with the US is an additional weight and coupled with a dovish RBA, the bulls will need to see some serious movement away from the greenback if the Aussie is to sustain a material comeback. China’s Xi has promised to raise imports amid the trade row with U.S. despite Trump’s Tweets, to the contrary, suggesting that he and Xi are engaging in lengthy positive talks ahead of their meeting at the G20 on the 26th of November.  

The mid-term elections are undermining the dollar as the pollsters confidently predict the Democrats taking the House. Should they not, we could see a relief rally in the greenback on expectations of further fiscal stimulus, especially if we are reminded by the Fed this week that  US growth is strong, inflation is at/or above target, and further gradual hikes are deemed necessary.

RBA outlook

“TD Securities and markets expect the RBA to keep the cash rate at 1.5% tomorrow. We anticipate the Bank to remain upbeat, but maintain its neutral policy outlook,” analysts at TD Securities argued.

We also have the RBA and Chinese trade data, both of which are more likely to weigh on the Aussie so long as there are no surprises from the RBA outside of their normal neutral dovish stance. Chinese export results coupled with continued scepticism  with regards to a US Chinse trade deal could be another factor that will weigh on the Aussie this week.

AUD/USD levels

The inverted hammer on the daily sticks leaves a bearish bias on the charts in the near term. However, there has not been a downside move yet. Bulls are still active and with  the recent surge in price, weeklies are showing that the price is now through the 74.6% fib of the 2016-18 rise which is also bullish. The  September and August monthly highs of 0.7315 and 0.7453 are key upside targets, should the greenback fall away this week. A break below the 96 handle with daily closes would be significant. However, on the downside,    a break below 0.7021 brings back prospects of the early Feb ’16 low (0.6973) and Jan ’16 low (0.6827) levels again.