Talking Points:

- AUD/USD Preserves Bullish Sequence Ahead of RBA Minutes, Australia Employment.

- EUR/USD Outlook Mired by Speculation for Protracted ECB QE Program.

- Sign Up & Join DailyFX Currency Analyst David Song to Discuss Key FX Themes & Potential Trade Setups.


The near-term rebound in AUD/USD may gather pace ahead of the Reserve Bank of Australia (RBA) Minutes as the pair extends the string of higher highs & lows from earlier this week.

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Market participants may closely watch the fresh remarks coming out of the RBA as they try to time the first rate-hike, but more of the same from Governor Philip Lowe & Co. may spark a limited response as the central bank appears to be on course to retain the current policy throughout 2017. As a result, Australia’s Employment report may gain increased attention as the economy is anticipated to add another 15.0K jobs in September, and a further improvement in the labor market may prop up the aussie-dollar exchange rate as it puts pressure on the RBA to lift the cash rate off of the record-low.

Keep in mind, the near-term outlook for AUD/USD remains capped as both price and the Relative Strength Index (RSI) preserve the bearish formations carried over from the summer months.

AUD/USD Daily Chart

AUD/USD Daily Chart
  • Near-term outlook for AUD/USD remains constructive as the former-resistance zone around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion)offers support, with the pair carving a fresh series of higher highs & lows.
  • At the same time, the RSI may highlight a bullish trigger over the coming days as it starts to break out of the downward trends from the summer months.
  • Close above the Fibonacci overlap around 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion) raises the risk for a move back towards 0.7930 (50% retracement) to 0.7940 (50% retracement), with the next topside hurdle coming in around 0.8020 (38.2% expansion).

EUR/USD pares the decline from the previous day amid the slew of lackluster data prints coming out of the U.S., but the pair stands at risk of facing range-bound conditions amid growing speculation the European Central Bank (ECB) will continue to expand its balance sheet in 2018.

Earlier this month, ECB board member Peter Praet warned the ‘baseline scenario for future inflation remains contingent on easy financing conditions, which, to a large extent, depend on the support of monetary policy,’ and the comments suggest the Governing Council will carry the quantitative easing (QE) program beyond the December deadline as the central bank ‘will recalibrate its instruments accordingly, with a view to delivering the monetary policy impulse that remains necessary to secure a sustained adjustment in the path of inflation in a manner that is consistent with our monetary policy aim.’ Keep in mind, President Mario Draghi and Co. may slowly reduce its asset-purchases ahead of 2018 as ‘the continued strong momentum of the euro area economy supported confidence that inflation would gradually reach levels in line with the ECB’s medium-term objective,’ but the Governing Council appears to be in no rush to remove the zero-interest rate policy (ZIRP) as ‘there was broad agreement to emphasise, as on previous occasions, the need for monetary policy to remain persistent and patient.’

With that said, a more detailed exit strategy may fuel the broader shift in EUR/USD behavior, but the pair may face range-bound conditions ahead of the ECB meeting on October 26 as both price and the Relative Strength Index (RSI) preserve the bearish formations carried over from the summer months.

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD makes another run at the 1.1860 (161.8% expansion) region, with a close above the former-support zone opening up the next topside target around 1.1960 (38.2% retracement); need to see both price and the Relative Strength Index (RSI) clear the bearish formations from August to adopt a more bullish outlook.
  • However, another failed attempt to hold above the key region may generate range-bound in EUR/USD, with the pair at risk for a move back towards 1.1670 (50% retracement).

Retail Sentiment

Retail Sentiment

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  • Retail trader data shows 44.3% of traders are net-long AUD/USD with the ratio of traders short to long at 1.26 to 1. The percentage of traders net-long is now its lowest since October 04 when AUD/USD traded near 0.78596. The number of traders net-long is 20.7% lower than yesterday and 10.5% lower from last week, while the number of traders net-short is 3.5% higher than yesterday and 0.5% lower from last week.
  • Retail trader data shows 36.5% of traders are net-long EUR/USD with the ratio of traders short to long at 1.74 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07897; price has moved 9.7% higher since then. The number of traders net-long is 2.8% lower than yesterday and 21.6% lower from last week, while the number of traders net-short is 12.5% lower than yesterday and 13.1% higher from last week.
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--- Written by David Song, Currency Analyst

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