AUD/USD Forecast Feb. 3-7

AUD/USD  continues to trade at low levels, but did managed to post modest gains over the week. The pair closed the week at 0.8751  line.  The upcoming week is busy, with 12 releases.  Here is an outlook on the major market-movers and an updated technical analysis for AUD/USD.

Australian PPI was sluggish, another indication of an underperforming economy. In the US, Unemployment Claims and Pending House Sales were weak, but Advance GDP showed a strong gain.

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

1. AIG Manufacturing Index: Sunday, 22:30. The index has posted two straight reading below the 50-point range, indicating contraction in the manufacturing sector. The markets will be hoping for a stronger reading in January.
2. MI  Inflation Gauge:  Sunday, 23:30. This event provides analysts with a monthly gauge of inflation, as CPI is only released each quarter. The index jumped to 0.7% in January, its sharpest gain in over seven years.
3. Building Approvals:  Monday, 00:30. This is the first key event of the week. The indicator has hit some turbulence, posting two straight declines. The downward trend is expected to continue, with the January estimate standing at -0.3%.
4. ANZ Job Advertisements: Monday, 00:30. Job Advertisements, an important employment indicator,  has  managed to post just one gain since March.  The previous indicator came in at -0.7%, and the markets will be hoping for better news in the upcoming release.
5. Commodity Prices: Monday, 5:30. Commodity Prices continues to sag, but the continuing declines are much smaller than what we saw in early 2013. The index dropped 4.0% in December, as demand for Australian exports remains weak.
6. Cash Rate: Tuesday, 3:30. The benchmark rate has been pegged at 2.50% since August, and no change is expected. However, the RBA has surprised the markets before with rate cuts, and given the underperforming Australian economy, this is a possibility. The rate decision will be announced in a Rate Statement.
7. AIG Services Index: Tuesday, 22:30. The indicator continues to post readings below the 50-point level, indicative of contraction in the services sector. The index dropped to 46.1 points in December, down from 48.9 a month earlier.
8. Retail Sales: Thursday, 00:30. Retail Sales is considered the most important consumer spending indicator, and should be treated as a market-mover. The indicator improved in December, posting a gain of 0.7%. The markets are expecting a small gain of 0.5% in the January reading.
9. Trade Balance: Thursday, 00:30. Australia continues to post monthly trade deficits, but there was some improvement in December, with a modest deficit of -$0.12 billion, beating the estimate of -$0.30 billion. The estimate stands at $-0.23 billion.
10. NAB Quarterly Business Confidence: Thursday, 00:30. This indicator is published each quarter, magnifying the impact of each release. The indicator posted a reading of +3 points in Q3, bouncing back from a poor reading of -1 points in Q2. The markets are hoping for another reading in positive territory for Q4.
11. AIG Construction Index: Thursday, 22:30. This index is a minor event, and unlikely to have much impact on AUD/USD. However, it is a useful gauge of the health of the important construction sector. Recent readings have been above the 50-point level, signifying expansion in the construction sector.
12. RBA Monetary Policy Statement: Friday, 00:30. This statement is used to communicate the RBA’s monetary policy to the public. The RBA has stated that it wants to see a weaker Aussie to help bolster the weak economy, and any reference to the currency could affect the movement of AUD/USD.

*All times are GMT.

AUD/USD Technical Analysis

AUD/USD started the week at 0.8694 and  dropped to  a  low of 0.8677. The pair then  pushed higher, crossing above the 0.88 line to a high of 0.8826.  The pair closed the week  at 0.8751, as support remained firm at 0.8728 (discussed last week).

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

Technical lines from top to bottom:

We  begin with resistance at 0.9283. This line  saw a lot of action in the months of June and July, alternating between resistance and support roles. It has provided steady resistance since November.

0.9180  is the next line of resistance.  It is followed by the round number of 0.9000, which saw activity earlier in January.

0.8893, protecting the 0.89 level, continues to hold firm.

0.8728 was  breached by the pair for the  second week  in a row after  providing resistance  since  July 2010, when the Australian dollar began an extended rally that saw it climb close to the 1.10 line.  This line is currently providing weak support.

This is followed by 0.8578, which has remained intact since  July 2010.

Next is 0.8432, which  played a key support role in late 2009. Below is  0.8365, which  was an important resistance line in July 2009.

The final support line for now is 0.8154, which was last breached in June 2010.

I am bearish on AUD/USD.

The  slumping Aussie  stabilized last week, but the prognosis for the currency is not positive.  With another QE taper out of  the US, the greenback could make a move upwards.  As well, the  Australian dollar  continues to be weighed down by the RBA, which has made no secret that it wants the Australian dollar trading at lower levels, and we could see this sentiment expressed in this week’s policy statement.

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For GBP/USD (cable), look into the British Pound forecast.
• For the Australian dollar (Aussie), check out the AUD to USD forecast.
• USD/CAD (loonie), check out the Canadian dollar.