Key Points:
- Weak technical bias could see a ranging phase occur.
- Fundamentals likely to be more important as we move ahead.
- Consumer Sentiment data likely to be the key risk event.
The AUD/USD was all over the show last week which now begs the question, where is it off to in the week to come? Due to this, it’s worth taking a look at exactly what happened and how this has positioned the pair for what’s coming down the line fundamentally. However, we should also take a look at the technical forecast to try gauge whether the bulls or bears are going to be in command moving forward.
Starting with lasts week’s performance, the Aussie Dollar had a fairly torrid few sessions of trading as it initially sank sharply before correcting as the week came to an end. This initial bearishness was a symptom of the 0.1% contraction in the Australian Retail Sales figure which revived the only recently allayed fears of a recession. The subsequent reversal stemmed primarily from some weaker US data, including the softer than expected Core CPI result of only 0.1% and a Core Retail Sales figure of 0.3%. Overall, the two swings largely offset one another and the pair closed only fractionally lower at 0.7384.
On the technical front, the AUD remained bound by its narrowing wedge last week but it is now equidistant from either constraint which leaves its technical outlook somewhat uncertain. Nevertheless, the EMA bias and the Parabolic SAR reading continue to favour the downside which means we are now poised to see more losses. This bearish outlook is only reinforced by the long wick on Friday’s candle which seems to suggest that the bulls are fairly thin on the ground.
As for what lies ahead on the news front, the Australian Consumer Sentiment data will be worth monitoring this week as it could generate a much larger move than is typical of the release. This is primarily due to the fact that it is the first reaction we have to the recently presented federal budget which has had a mixed reception in the online commentary space. If we have a solid uptick in the sentiment result, we could see the pair hold onto the prior few session’s gains as they are currently in danger of being eroded. However, also keep half an eye on the Aussie Unemployment Rate, even though it’s expected to remain flat at 5.9%.
Ultimately, the relatively weak technical bias and the unclear fundamental outlook make the AUD a risky bet moving ahead. Ideally, we would need to see the pair move closer to the constraints of its wedge before we can forecast a strong reversal which likely means a ranging phase should take hold this week. As a result, we don’t expect to see price action break out of the 0.7420 – 0.7367 levels this week unless we see some major fundamental upsets.