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The Australian dollar  was down sharply against its US counterpart,  dropping  almost 300 pips  last week. The upcoming week  is a quiet one, with three economic indicators, and the markets watching to see if the  impressive run by the US dollar continues.  Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

Australia’s GDP rose  1 percent in the third quarter, which was higher than the markets had anticipated. The areas of strongest growth  were consumer spending and investment in the  mining sector. With the cheery economic news, a third consecutive interest rate cut in February by the central bank  appears less likely.  The US rallied against the Aussie last week, as the  greenback continues to  benefit from the crippling eurozone debt crisis.

Updates: Australia’s CB Leading Index rose by 0.6%, and meeting minutes showed that the RBA is not expected to cut the rates so fast. This helped the Aussie recover from the lows of under 0.99 and tackle parity once again. The Aussie made a move above 1.02 but lost it quickly as hope left Europe again. AUD/USD is around 1.01. The Aussie climbed above 1.01 and remains stable overcoming a disappointment in New Zealand’s GDP figure. Towards Christmas, AUD/USD stabilizes around 1.0150, capped by 1.02.

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

  1.  CB Leading Index: Monday, 23:00. This  Conference Board  composite index is based on seven important economic indicators.  November’s reading of 0.1% brought a cheer  from the markets for two reasons.  First, the index rose into positive territory for the first time since  June. Second,  the  reading was significantly better than the market forecast  of -0.2%.    Will the index stay in positive territory this month as well?
  2. Monetary Policy Meeting Minutes: Tuesday, 00:30.   This monthly report provides  a record  of the central bank’s most recent meeting.  Analysts and traders  carefully look at the bank’s views  on economic conditions and interest rate policy. A report that is more hawkish than anticipated by the markets is bullish for the Aussie.
  3. MI Leading Index: Tuesday, 23:30. This important composite  index of nine economic indicators was  on a roll, with three consecutive positive readings since July. In November, however,  the index retracted to -0.3%, stunning  the markets,which had predicted a  rosy  reading of 0.7%. Can  the index get back on track and climb into positive territory?
AUD/USD Technical Analysis
The US dollar  had a strong run  at the expense of the  Aussie.  The pair opened the week at 1.0205, and plunged to 0.9861, easily breaching the weak support line of parity (discussed last week), before recovering to close the week at 0.9935.

Technical levels from top to bottom:

We begin with the round number of 1.0733, which  is strong resistance. Next is the round number of  1.05, which  served as support in May and  June, and is now in a  resistance role.  Below is 1.0446, followed by the round number of 1.04, which is a strong level of resistance.  The next line of major resistance is 1.0336.  Next, the  level of 1.0260  is a weak line of resistance.  Parity  is  a weak line as well, as the currency is showing no trouble going above and below this psychological barrier.    0.9810 is  now  providing  weak support to the pair. Strong support for the assie can be seen at 0.9660, as well as the round number of 0.95 – the latter was breached only once in 2011. The final support level for now is at 0.9376.

I am  bearish  on AUD/USD

The  continuing  debt crisis  in Europe and the global slowdown, particularly in China, are  weighing on the Australian dollar. The rally by the greenback against the Aussie this week may be a sign of more to come, if Europe cannot get its act together and the US economy continues to improve.

Further reading:

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