Date: 05 Nov 2018
The consumer price index (CPI) in Australia fell to 1.9% year-on-year in the third quarter of this year, comparing to the 2.1% in the previous period but consistent with analysts’ estimates of 1.9%. The slowdown in the CPI was mainly due to a decline in the cost of housing. This key economic indicator measure changes in purchasing trends and inflation. A high reading is seen as positive for the AUD, while a low reading is seen as negative. This recent drop on the CPI may support the Reserve Bank of Australia (RBA) to keep the interest rate unchanged at the end of its next meeting on November 6.
The non-farm payrolls in the US increased by 250K in October, compared to the downwardly revised 118K registered in September and stronger than analysts’ forecast of 190K. Job growth occurred in health care, in manufacturing, in construction, and in transportation and warehousing. Meanwhile, the unemployment rate came in at 3.7%, the same as the previous period and In line with analysts’ consensus. The labour market continues to show strength which can be seen as positive for the USD, just by analysing this two US indicators.
Since the beginning of 2018 until last Friday close, the AUDUSD remains negative with a loss of over 7.5% but began October above water with over 1.5% gain. Nonetheless, ended the past week with a firmer tone gaining more than 1.0% and on the daily time-frame, the currency pair closed in the red with a minor loss of 0.08%. Furthermore, the AUDUSD made a phase change, shifting from a bearish to a recovery phase.
On last Friday session, the currency pair initially rallied with a narrow range but found enough selling pressure near 0.72583 to erase all of its initial gains and closed near the low of the day, however, managed to close within Thursdays’ range, which suggests being slightly on the bearish side of neutral.
The stochastic is showing a strong bullish momentum and is above the 50 midline.
During the month of October, the currency pair made a new year-to-date low at 0.70207 and developed a double bottom pattern that broke the neckline in early November reaching its projected target 0.72620 almost to the tick. A double bottom pattern is the combination of two consecutive troughs that are roughly equal, with a moderate peak in-between that describes a change in trend and a momentum reversal from prior leading price action. On last Friday the AUDUSD made a shooting star pattern which indicates a potential price top and reversal. However, it seems not to be most effective because it did not form after a series of at least three or more consecutive rising candles with higher highs. Therefore, we might expect a downward move to the 50-day moving average now at 0.71463 which lines up with the neckline of the double bottom at 0.71447.
Watch out this Week:
On Tuesday, November 06 at 03:30 GMT (22:30 PM ET) the Reserve Bank of Australia (RBA) is scheduled to announce that the interest rates will remain unchanged at 1.5% as widely expected by market analysts.
On Wednesday, November 07 US Midterm Election Day results, counting starts as soon as the polls close and we should have the results early morning Wednesday. Market analysts expect a divided US Congress, which means that Trump would be unable to drive his domestic policy agenda forward. Therefore, the mid-term elections should have limited implications for markets and the economy, as there will be no changes to economic policy.
On Thursday, November 08 at 19:00 GMT (14:00 PM ET) the US Federal Reserve Bank (FED) is scheduled to announce that the interest rates will remain unchanged at 2.25% as widely expected by market analysts. The FED will also release its statement regarding monetary policy. A hawkish statement may be viewed as positive for the US dollar (USD), whereas a dovish view is considered negative.
On Friday, November 09 at 00:30 GMT (19:30 PM ET) the Reserve Bank of Australia (RBA) is scheduled to release its statement regarding monetary policy. The statement is considered a clear guide to the future RBA interest rate policy and a hawkish view may be regarded as positive for the Australian dollar (AUD), while a dovish outlook is considered as negative.
AUD/USD Daily Candlestick Chart
Written by Hugo O’Neill, External Analyst
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