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AUD/USD Trading Around Key Support Ahead of US 3Q GDP

AUD/USD Trading Around Key Support Ahead of US 3Q GDP

2016-10-28 09:33:00
Oded Shimoni, Junior Currency Analyst
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Talking Points:

- AUD/USD trading above key trend line support around 0.7550

- US 3Q GDP numbers headline the economic docket and could prove crucial for near term directional conviction

- Learn good trading habits with the “Traits of successful traders” series

The AUD/USD is trading above key trend line support around 0.7550 after the Aussie failed to find follow-through to carry it above the all-important 0.77 handle resistance.

Looking ahead, US third-quarter GDP numbers headline the economic docket and could prove significant for Fed rate hike speculation.

Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.

AUD/USD Trading Around Key Support Ahead of US 3Q GDP

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US Advanced 3Q GDP figures are set to hit the wires 12:30 GMT. Expectations are for 2.5% growth in 3Q year-on-year, after the prior and disappointing 1.4% figure.

A positive report may add further momentum to the latest US Dollar rally, as it seems the Fed are on course for a potential rate hike in December.

With that said, the probability for a December hike currently sit at around 72% at the time of writing (according to Fed fund futures), implying that risks may be skewed to the downside as a weak GDP report might have more influence inducing a sharp US Dollar correction by hurting hike probabilities, as opposed to a limited response on positive numbers.

On the other side of the equation, RBA rhetoric has been perceived as cautiously positive as of late, leaning away from the dovish side to more of a “wait-and-see” approach, thus lowering probabilities for further tightening after the August rate cut; a fact which may have offered some resilience to the Aussie in the face of recent US Dollar strength.

Taking this into consideration might suggest that a clear AUD/USD breakdown may need another catalyst to present itself, with “risk-off” being a prime candidate if that scenario was to finally materialize.

AUD/USD Technical Levels:

AUD/USD Trading Around Key Support Ahead of US 3Q GDP

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We use volatility measures as a way to better fit our strategy to market conditions. The AUD/USD is seeing a pickup in 1-week and 1-month implied volatility measures ahead of next week’s rate decisions.

With that said, 20-Day ATR readings are sitting at subdued levels, potentially implying that major technical levels may hold until a clear catalyst presents itself.

AUD/USD 30-Min Chart: October 28, 2016

AUD/USD Trading Around Key Support Ahead of US 3Q GDP

(Click to Enlarge)

The AUD/USD is sitting near short term support around 0.7576.

Other support levels to watch might be 0.7550, 0.7525 and 0.7500.

Levels of resistance in the short term appear to be 0.7600, 0.7620, 0.7650, 0.7674 and the 0.77 handle.

AUD/USD Trading Around Key Support Ahead of US 3Q GDP

In the short term, GSI is showing similar momentum patterns moved to the downside more often than to the upside.

The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.

--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com

To contact Oded Shimoni, e-mail oshimoni@dailyfx.com

Follow him on Twitter at @OdedShimoni

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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