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Talking Points:

- AUD/USD Stages Larger Recovery Ahead of RBA Minutes; Governor Lowe Testimony in Focus.

- USDOLLAR Outlook Mired by Bearish RSI Formation; Fed Funds Futures Remain Unchanged.

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AUD/USD

AUD/USD Daily Chart

Chart - Created by David Song

  • AUD/USD extends the rebound from the previous week, but the broader outlook remains tilted to the downside following the failed attempt to test the August high (0.7759), while the Relative Strength Index (RSI) preserves the bearish formation carried over from late-June.
  • The Reserve Bank of Australia (RBA) Minutes may fuel a larger advance in AUD/USD as the central bank keeps the benchmark interest rate the record-low of 1.50% in September and looks poised to retain a wait-and-see approach over the near-term as Dr. Philip Lowe takes the helm of the central bank; will keep a close eye on the fresh rhetoric as Governor Lowe is scheduled to testify before the House of Representatives Standing Committee on Economics on Thursday.
  • Need a break/close above the Fibonacci overlap around 0.7580 (50% expansion) to 0.7600 (23.6% retracement) to favor a larger recovery in AUD/USD, with the next topside hurdles coming in at 0.7650 (78.6% retracement) followed by 0.7340 (78.6% expansion, which lines up with the monthly high (0.7731).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long AUD/USD since September 9, with the ratio marking a 2016 extreme in January as it climbed to +2.50.
  • The ratio currently sits at +1.09 as 52% of traders are long, with short positions jumping 21.6% from the previous week, while open interest stands 12.5% above the monthly average.
  • May see a further shift in retail positioning as AUD/USD appears to be carving a longer-term series of lower highs & lows.

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

11975.80

12010.9

11959.8

-0.31

87.24%

AUD/USD Stages Larger Recovery Ahead of RBA Minutes, Lowe TestimonyUSDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR may continue consolidate ahead of the Federal Open Market Committee (FOMC) interest-rate decision as it appears to have made a failed run at the August high (12,027), with the greenback at risk of facing choppy price action ahead of the fresh central bank projections as Fed Funds Futures continue to highlight a less than 20% probability for rate-hike this week.
  • Even though the Fed looks poised to follow a similar path to 2015, a marked downward revision in the interest rate dot-plot for 2017 as well as for 2018 may produce headwinds for the dollar as Fed Chair Janet Yellen continues to endorse a ‘gradual’ path to normalizing monetary policy.
  • Failure to hold above the Fibonacci overlap around 11,951 (38.2% retracement) to 11,965 (23.6% retracement) would open up the next downside area of interest around 11,898 (50% retracement) to 11,914 (38.2% retracement), followed by the monthly low (11,851).
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Weekly Trading Forecast: Fed and BoJ Rate Decisions, Brexit Fears Carry More than Currency Risks

--- Written by David Song, Currency Analyst

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

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