The Aussie traded in a choppy manner and eventually managed to recover early losses and close a bit higher.Where is it going from here? Quarterly inflation figures are the highlights of this week. Here is an outlook for the Australian events and an updated technical analysis for AUD/USD
The big question of the character of the Chinese “landing” (slowdown) is looming on the markets. Official Chinese GDP in Q3 came out lower than expected. We’ll now get an independent assessment of the Chinese economy.
- PPI: Monday, 00:30. Australia publishes official inflation figures only once per quarter rather than once a month. This makes the publications, including the Producer Price Index, very important. In Q1 and Q2, price rises exceeded expectations and rose by 1.2% and 0.8% respectively. A rise of 0.8% is expected now.
- Chinese HSBC Flash Manufacturing PMI: Monday, 2:30. As official Chinese numbers are questionable, this independent measure from HSBC is highly regarded and has a strong impact on the Aussie. In the past three months, HSBC has shown a small contraction in Chinese manufacturing, with the score set at 49.4 points last month. A similar number is likely now. Note that official PMI print numbers above 50, pointing to growth.
- Ric Battellino talks: Monday, 23:00. The deputy governor of the RBA will speak at Sydney and might shed some light on future moves. After the recent meeting minutes, there are high expectations for a rate cut at the next RBA meeting. Battellino will probably relate to the situation.
- CB Leading Index: Tuesday, 00:00. The Conference Board uses 7 economic indicators for its compound figure. The past three months have shown dips in this index. A bigger drop than last month’s 0.1% fall is likely now.
- CPI: Wednesday, 00:30. The main inflation figure will likely provide significant guidance for the rate decision. A small rise and of course a drop in the consumer price index can push the RBA into moves. In Q2, inflation exceeded expectations and rose by 0.9%, prompting expectations for a rate hike. Since then, everything has changed, including commodity prices. A smaller rise of 0.7% is expected now. Trimmed Mean CPI (Core CPI in other countries) is likely to follow suit.
* All times are GMT.
AUD/USD Technical Analysis
Aussie/USD traded in a see-saw fashion throughout the week, cushioned by the 1.01 line and capped by 1.04 (both mentioned last week). It eventually closed at 1.0370, at the upper end of the range, but not much changed.
Technical levels from top to bottom:
Even though the pair’s volatility is lower now, it could erupt again soon, so many lines are included.
1.0775 was encountered on the way up and was the peak of a surge in August. The round number of 1.06 worked in both directions in recent months.
1.0480 was weak support in August. The round number of 1.04 was a swing low in June and also the peak of a failed recovery attempt in September. It was also a cap in October.
1.0314 was a stepping stone on the way up many months ago and also a line of support in August. It is now just another pivotal line in the range. The 2010 peak of 1.0254 is now weaker than earlier, but it is still of importance, the same as the previous line.
1.01 was the area of a cushion around July and also provided support after the recent surge in October, for two weeks in a row. The next line is obvious: AUD/USD parity. The very round number has strengthened in September after capping a recovery attempt. It also proved its importance in October.
Below parity, 0.9930 is weak resistance after holding back in August. 0.9880 was a swing high in October and is another line of resistance.
The 0.98 line served as support early in the year, and serves as weak another weak line of resistance. The next round number of 0.97 was a swing low in March and also worked as support in September.
0.9622 was a fresh low in September and is immediate support right now. This was also a line of support back in September 2010. Lower, 0.9540 was a stepping stone on the way up back in the fall of 2010 and then provided critical support in November.
0.9460 capped the pair on the way up and then turned into support – it has the same role now. The fresh low under 0.94 makes this round number a strong support line.
0.93 – which was a clear gap line in September 2010 and is very important support on the way down. The last line for now is 0.9220, which was resistance more than a year ago.
I turn from neutral to bearish on AUD/USD.
The Aussie is evidently very sensitive to events in Europe that could turn for the worse. Also China’s slowdown can turn out to be worse than expected. These factors can weigh heavily on the Aussie as well as low inflation numbers, that could accelerate a rate cut. It seems that after a wonderful recovery, the Aussie stalled. It could now turn back and fall, despite good job figures seen recently.
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