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The Australian dollar dropped sharply last week, as AUD/USD lost around 180 pips as it slipped below  parity,  closing at 0.9843. The upcoming week  is very quiet, with only  three  releases. Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

The Australian dollar has looked terrible since the recent deep interest cut. The economy continues to suffer from the global slowdown, and indicators such as New Motor Vehicle Sales have been sluggish.

Updates: AUD/USD continues to drop, as parity is fast becoming a distant memory. The pair was trading at 0.9846. AUD/USD was up for a change, as the pair was trading at 0.9876. The markets are waiting for the release  on Wednesday of  two Leading Index readings, so we could see some movement  by the pair. The CB leading index  rose 0.2%,  up from April’s flat figure of 0.0%. The MI leading Index came in at 0.4%, up from the 0.2% reading in April. AUD/USD continues to drop as investors show a strong pereference  for safe haven currencies. The pair was trading at 0.9756. Chinese Flash Manufacturing PMI,a key indicator, was done slightly. The index came in at 48.7, down from the previous reading of 49.1.  The aussie  moved  up slightly, as the pair was trading at 0.9779. The Australian dollar has lost over 1.5 cents so far this week against it US counterpart.

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

  1. CB Leading Index: Wednesday, 00:00. This composite index   fell sharply in April, coming in at a flat 0.0%. Will the indicator rebound in May, and climb back into positive territory?
  2. MI Leading Index: Wednesday, 00:30. This important composite index is based on 9  economic indicators.  The  April reading  was  weak, as the index fell to 0.2%,  compared to 0.6%  in March.  Another weak reading would indicate weak economic activity and could hurt the aussie.
  3. Chinese Flash Manufacturing PMI: Thursday, 2:30. This diffusion index has been under the 50.0 level since last October, indicating contraction in the Chinese manufacturing sector. The markets are predicting little change in the May reading, with an estimate of 49.3.

* All times are GMT.

AUD/USD Technical Analysis

AUD/USD opened at 1.0020. The pair reached a high of of 1.035, but then dropped sharply,  falling as low as 0.9795,  as the resistance line of 0.9780  (discussed last week) held firm.  The pair rebounded  somewhat at the end of the trading week, and  closed at  0.9843.

Technical levels from top to bottom:

With  AUD/USD dropping sharply, we will adjust our support and  resistance lines accordingly.    

We begin with resistance at 1.0525, which  was severely tested  by the pair in March. Below, 1.0402, which  was a fluid line  for much of April,  continues to provide strong  resistance.

Close by, 1.0340 is the next line of resistance. Below, 1.0230, which had held firm in support since January,  continues to provide  resistance. This line has strengthened as AUD/USD trades at lower levels.

Next is the line of 1.0080, which had been protecting the all-important parity level since December 2011. This line was breached last week, and is  now providing resistance to the pair.  

Next, 0.9917  was breached this week and is  providing  resistance.  The next line is 0.9860, which the pair breached this week. It is providing weak resistance. Below, the  pair is getting  support at 0.9780. The next level of support is 0.9668, which has not been tested since March. This followed by strong support at 0.9541. Next is support just above the 0.94 level, at 0.9405. The final line for now is at 0.9294, which has provided AUD/USD with strong support since September 2011.

I am bearish on AUD/USD.

The  Australian dollar continues to tumble, and has now dropped almost 6 six cents in the month of May.  For anyone who loves extreme volatility in the markets, there’s no need to look elsewhere. What’s next for the pair? Given the turbulence and uncertainty in Europe, investors will be favoring safe haven currencies, which spells more trouble for the  free-falling aussie.

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

Further reading: