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AUD/USD Struggles Ahead of NFP Report; RSI Warns of Further Losses

AUD/USD Struggles Ahead of NFP Report; RSI Warns of Further Losses

2017-03-08 16:00:00
David Song, Strategist
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Talking Points:

- EUR/USD Outlook Clouded Ahead of ECB; Near-Term Range Remains Intact.

- AUD/USD Struggles as China Posts Trade Deficit; Bearish RSI Formation Warns of Further Losses.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0558

1.0574

1.0535

8

39

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The near-term outlook for EUR/USD is becoming increasingly clouded ahead of the European Central Bank (ECB) interest rate decision as price & the Relative Strength Index (RSI) break out of the bearish formations carried over from the previous month, but fails to test of the topside hurdle around 1.0660 (50% expansion) to 1.0680 (78.6% expansion); may see the euro-dollar exchange rate face range-bound conditions as the pair pullbacks from the monthly high (1.0640) and starts to carve a series of lower highs & lows.
  • The ECB meeting may generate limited market interest as President Mario Draghi and Co. are widely expected retain the current policy, but the Governing Council may largely endorse a dovish outlook for monetary policy even as the central bank is scheduled to reduce its asset-purchases to EUR 60B/month starting in April; the ECB may keep the door open to further extend its non-standard measures as the committee struggles to achieve its one and only mandate for price stability and argues ‘headline inflation had increased recently, mainly owing to developments in energy prices.’
  • Indeed, Fed Chair Janet Yellen struck a similar tone as the central bank head warned ‘higher energy prices appear to have temporarily boosted inflation,’ but the Federal Open Market Committee (FOMC) appears to be on course to increase the benchmark interest rate on March 15 with Fed Fund Futures now pricing a greater than 80% probability for a rate-hike; nevertheless, the fresh projections for growth, inflation and the interest rate may undermine the pickup in market expectations should Fed officials continue to trim the longer-run forecast.
  • In turn, the Fibonacci overlap around 1.0470 (38.2% expansion) to 1.0500 (50% expansion) may continue to offer support, but the broader outlook for EUR/USD remains tilted to the downside amid the diverging paths for monetary policy, with the next downside region of interest coming in around 1.0370 (38.2% expansion) to 1.0420 (61.8% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7547

0.7609

0.7532

41

77

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD struggles to hold its ground as China, Australia’s largest trading partner, posts the first trade deficit since 2014, and the string of failed attempts to close above the 0.7600 (23.6% retracement) handle raises the risk for a further decline in the exchange rate especially as the RSI extends the bearish formation carried over from the previous month.
  • Even though the Reserve Bank of Australia (RBA) continues to note ‘conditions in the global economy have continued to improve over recent months,’ it seems as though Governor Philip Lowe and Co. are in no rush to remove the record-low interest rate as ‘inflation remains quite low,’ and the central bank may stick to the sidelines throughout 2017 ‘with growth in labour costs remaining subdued.’
  • With the RBA meeting out of the way, the U.S. Non-Farm Payrolls (NFP) report may boost the appeal of the greenback and spark further losses in AUD/USD as employment is projected to increase another 197K in February, while Average Hourly Earnings are expected to climb an annualized 2.7% following the 2.5% expansion the month prior.
  • Signs of stronger wage growth may push the Federal Reserve to further normalize monetary policy over the coming months, with Chair Yellen arguing a March rate-hike would be ‘appropriate’ as long as the economy stays on course, but the central bank may tame expectations for a series of rate-hikes as ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.
  • The 0.7530 (38.2% expansion) region appears to be offering near-term support, but the aussie-dollar exchange rate remains at risk for a further decline as the bearish RSI formation gathers pace, with the next downside region of interest coming in around 0.7500 (50% retracement) followed by 0.7450 (38.2% retracement).

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Read More:

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March Forex Seasonality Sees Neutral Month for USD After February Rebound

--- Written by David Song, Currency Analyst

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

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