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Slowing China to Foster AUD/USD Weakness Ahead of RBA Rate-Decision

Slowing China to Foster AUD/USD Weakness Ahead of RBA Rate-Decision

2016-06-30 16:55:00
David Song, Strategist
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Talking Points:

- Slowing China to Foster AUD/USD Weakness Ahead of RBA Rate-Decision.

- USDOLLAR Bull-Flag Continues to Take Shape; ISM Manufacturing on Tap.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

AUD/USD

AUD/USD Daily Chart

Chart - Created by David Song

  • AUD/USD may struggle to retain the advance from earlier this week as China, Australia’s largest trading partner, faces a slowing recovery, with the region’s Purchasing Managers Indices (PMI) anticipated to downtick in June.
  • Even though the Reserve Bank of Australia (RBA) is widely anticipated to preserve its current policy at the July 5 interest-rate decision, the fresh batch of central bank rhetoric may produce near-term headwinds of the aussie should Governor Glenn Stevens adopt a more cautious tone and show a greater willingness to further embark on the easing cycle.
  • Nevertheless, more of the same from the RBA may fuel a larger recovery in AUD/USD as it breaks out of the downward trend carried over from April, with a closing price back above 0.7490 (61.8% retracement) to 0.7500 (61.8% expansion) raising the risk for a run at the June high (0.7646).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since June 23, with the ratio hitting an extreme reading back in May as it climbed towards +2.25.
  • The ratio currently sits at +1.03 as 51% of traders are long, with long positions 5.0% higher from the previous week even as open interest stands 8.1% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

US Dollar Index

12016.64

12028.64

11953.24

0.39

102.78%

Slowing China to Foster AUD/USD Weakness Ahead of RBA Rate-DecisionUSDOLLAR Daily Chart

Chart - Created by David Song

  • Despite the limited market reaction to the U.S. data prints, the USDOLLAR appears to be carving a bull-flag (continuation) pattern as it remains stuck in a narrow downward trending channel; will retain a constructive view for the greenback as it breaks out of the downward trend from earlier this year.
  • Even though market participants are pushing out expectations for the next Fed rate-hike, the ‘flight to quality’ may prop up the greenback over the near to medium-term as the outlook for the global economy becomes increasingly clouded with uncertainty; will keep a close eye on the ISM Manufacturing along with the batch of Fed rhetoric scheduled for the days ahead as market participants weigh the outlook for monetary policy.
  • Waiting for break/close above the Fibonacci overlap around 12,049 (78.6% retracement) to 12,064 (61.8% retracement) to favor a further advance in the greenback, which may open up the next topside target around 12,170 (78.6% retracement) to 12,176 (78.6% expansion).
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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