AUD/USD Forecast Jan 28 Feb 1

AUD/USD dropped sharply last week, shedding about 150 points. The pair dipped  to the 1.04 line,  closing the week at  1.0421.  The major release this week is Australian PPI.

The Aussie had a miserable week. Australian CPI declined sharply, and US key data was mixed, leaving investors uneasy and preferring to stick with the safe-haven US dollar.

Updates: CB Leading Index declined by 0.2%. The index has only posted one gain since last August. NAB Business Confidence was outstanding, as it climbed to  3 points, after a reading of -9 points the previous month. AUD/USD has improved slightly, as the pair was trading at 1.0446. HIA New Homes Sales looked sharp, jumping 6.2%. Import Prices climbed 0.3% in Q4, below the estimate of 0.5%. Private Sector Credit gained 0.4%, beating the forecast of 0.2%. AIG Manufacturing Index will be released later on Thursday. AUD/USD is steady, as the pair was trading at 1.0419.

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

1. CB  Leading Index: Monday, 23:00. This important index is composed  of  7  economic indicators.  After two  consecutive declines, the index posted a gain of 0.2%  in December. The markets will  be hoping for another gain  in the January reading.
2. NAB Business Confidence: Tuesday, 00:30. In December, the indicator plummeted to its worst level in over three years, dropping  9 points. This points to very weak business confidence in the Australian economy. Will the indicator show improvement in the upcoming release?
3. HIA New Home Sales: Thursday, Tentative. Home Sales have rebounded nicely, posting two straight solid gains. The markets will be hoping for a repeat of the positive news in the January release.
4. Import Prices: Thursday, 00:30. This quarterly indicator was a disappointment in December, dropping 2.4%, its lowest level since early 2011. The markets are expecting a turnaround in the upcoming release, with an estimate of 0.5%.
5. Private Sector Credit: Thursday, 00:30. This indicator has showed very growth of late, and posted a flat 0.0% reading last month. The markets are  expecting a slight gain of 0.2% in the January release.
6. AIG Manufacturing Index: Thursday, 22:30. This index has been mired below the 50 level since February, pointing to ongoing contraction in the manufacturing sector. No major change is expected in the upcoming release.
7. PPI: Friday, 00:30.  Producer Price Index is a key indicator of consumer inflation. The index rose 0.6% last month, well below the estimate. PPI is expected to rise 0.3% in January.
8. Chinese Manufacturing PMI: Friday, 1:00. This key manufacturing index has stayed just above the 50 line in recent releases, although the previous release fell slightly below the estimate. The markets are expecting a strong reading in January, with a forecast of 51.1 points.
9. Commodity Prices: Friday, 5:30. Australian Commodity Prices continue to decline, although December’s slide was not as bad the previous month. Another drop is expected, underscoring the weakness of the export sector due to decreased global demand.

AUD/USD Technical Analysis

AUD/USD opened at 1.0503, and touched a high of 1.0548. It was all downhill after that, as the pair fell all the way to 1.0403. AUD/USD  closed the week at 1.0423, as the support line of 1.0418 (discussed last week) remains intact.

With the Australian dollar taking a tumble, we start at lower levels.  There is resistance just below the 1.10 line, at 1.0990. This  line has held firm since  August 2011.  Next is 1.0850, which  was  last tested  in February 2012. This is followed by resistance at 1.0739. Below, there is resistance at 1.0605. The pair has not tested this line since last September. 1.0508 was a weak support line, and has now reverted to a resistance role after the   Aussie’s slide.

AUD/USD   is receiving support at 1.0418. This weak line was briefly breached by the pair, and could see more activity as we begin the new trading week. This is followed by support 1.0326, which has held firm since mid-November. Below, there is support at 1.0230.

We next encounter support at 1.0174, which was last tested in early October. This is followed by 1.0080, which is protecting the parity level. The parity line, last tested in June, is psychologically significant and the next line of support. The final support level for now is at 0.9917.

I am  bullish on AUD/USD.

AUD/USD had a terrible week, despite strong Chinese manufacturing data. Since China is Australia’s most important trading partner, solid Chinese data is generally bullish for the Aussie. That this was not the case last week may point to  serious concerns  about the health of the Australian economy  . At the same time, the US economy has been giving mixed signals, and investors’ appetites for riskier assets such as the Australian dollar have decreased.

The Aussie sometimes moves in tandem with gold. You can trade binary options on gold using this technical analysis.

Further reading:

• 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 USD/CAD (loonie), check out the Canadian dollar forecast