Hawkish RBA Minutes to Fuel AUD/USD Rebound; Former-Support on Radar

2016-11-14 18:10:00

Talking Points:

- AUD/USD Fails to Test Oct. Low (0.7506); Hawkish RBA Minutes to Fuel Rebound.

- USD/JPY Clears July High (107.48); Topside Targets Remain in Focus.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
AUD/USD	0.7538	0.7566	0.752	5	46

AUD/USD Daily

Chart - Created Using Trading View

Failure to preserve the upward trend from February raises the risk for a further decline in AUD/USD especially as it carves a near-term series of lower highs & lows, but the higher-yielding currency may continue to outperform against its major counterparts as the Reserve Bank of Australia (RBA) looks poised to preserve the current policy at the December 6 meeting and appears to be on its way to gradually move away from its easing-cycle; will keep a close eye on the former support zone around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) for new resistance.
The RBA Minutes may spur a failed test of the October low (0.7506) as Governor Philip Lowe and Co. expect the economy ‘to grow at close to its potential rate, before gradually strengthening,’ and the fresh batch of central bank rhetoric may heighten the appeal of the Australian dollar as the central bank softens its dovish tone and argues ‘inflation is expected to pick up gradually over the next two years.’
Failure to test the October low (0.7506) may spur a near-term rebound in the exchange rate, but the broader outlook is becoming increasingly bearish as the Relative Strength Index (RSI) also struggles to preserve the bullish formation from earlier this year, with a break/close below 0.7500 (50% retracement) raising the risk for a move back towards the September low (0.7442).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	108.06	108.54	106.51	137	203

USD/JPY Daily

Chart - Created Using Trading View

USD/JPY may continue to recoup the losses from earlier this year as it breaks out of the downward trend carried over from February, with the RSI highlighting a similar dynamic; may see the bullish momentum gather pace as the oscillator pushes into overbought territory, with the advance in the exchange rate largely accompanied fresh monthly highs in the Nikkei 225.
With a slew of Fed officials scheduled to speak over the coming days, the pickup in risk appetite may taper off as central bank officials take a more collective approach in preparing U.S. households and businesses for a December rate-hike, but Chair Janet Yellen may largely endorse a wait-and-see approach for 2017 as the central bank head is scheduled to testify in front of the Joint Economic Committee on November 17.
The stronger-than-expected 3Q Gross Domestic Product (GDP) report may encourage the Bank of Japan (BoJ) to retain the current policy at the last 2016 interest-rate decision on December 20, and a further appreciation in the exchange rate may push Governor Haruhiko Kuroda to soften the dovish outlook for monetary policy as the quantitative/qualitative easing (QQE) program with ‘Yield Curve Control’ appears to be having the intended impact.
A closing price above 108.40 (50% retracement) may open up the next topside target around 110.20 (50% retracement) followed by the May high (111.45).

The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd is net-short USD/JPY for the first time since July 20 after hitting a 2016-extreme of +6.04 in September, while traders have been net-long AUD/USD since November 9.
USD/JPY SSI sits at -1.25 as 45% of traders are long, with short positions 75.1% higher from the previous week, while open interest stands 4.0% above the monthly average.
AUD/USD SSI sits at +1.60 as 62% of traders are long, with long positions 37.4% higher from the previous week even as open interest stands 7.9% below the monthly average.
Despite the overbought RSI reading for USD/JPY, may see the retail crowd get caught on the wrong side of the market as the pair breaks out of the downward trend from earlier this year.

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