Slowdown in the Chinese economy is pictured well in the AUDUSD weekly chart. The downtrend started roughly at the same time as copper, peaking in 2010, and has continued ever since with the declining copper prices. Speculators bought massive amounts of copper while the Chinese economy was still expected to keep on growing. Since then the Chinese authorities have been steering the economy away from investment and export lead growth into an economic model that relies more on domestic consumption. This transition, however, will take time and does not benefit metal producers such as Australia as much as government investment driven growth, which means that money is not pouring into raw material intensive infrastructure projects.
We are living in the time of deleveraging and the excess supplies are being worked out. Therefore prices are likely to stay low for the foreseeable future. The latest move lower from a resistance (identified in Sept. 18th Currency Movers report) wasn’t a surprise but was rather pretty much in line with this development.
This week’s two important fundamental events are Chinese Caixin PMI on Thursday and the US Non-Farm Payrolls on Friday. The latter obviously moves the Fed due to the employment being half the Fed’s mandate together with the price stability. The former though is something new for the Fed to consider but since the latest comments by the Fed Chair Yellen it has been evident that the central bank is taking this globally significant economy into consideration in their policy.
The pair rallied from current levels to where several technical factors came together and caused the price to turn lower again (a pivotal low at 0.7213 coincided with 50 day SMA and the upper Bollinger Bands). Price eventually formed two shooting star candles after which the original momentum resumed. Then I wrote in Sept. 24th Currency Movers report that: AUDUSD is approaching daily Bollinger bands and support which indicates that it is time to close the shorts opened after the shooting stars were formed. This worked perfectly as the pair bounced from my support of 0.6950 after briefly moving below it.
Since returning to lower Bollinger Bands price has created a bullish pin bar but there has been no follow through. The pair has moved sideways inside the pin bar range since the Asian session on Friday. Stochastics are oversold and price moves near the regression line. Thursday’s pin bar low coincided with the 1.5 standard deviation lower Bollinger Band. The nearest support levels are at 0.6904 and 0.6941 while the nearest daily resistance level is at 0.7140. In addition, the weekly low value from last week is at 0.7063, only 20 pips above the 0.7043.
AUDUSD, 240 min
The intraday picture suggests indecision. Price is trading sideways without major attempts to move to either direction. The upside has been limited by a resistance at 0.7026 while the lower end was rising. This created a triangle that points to the 0.6938 – 0.6966 support bracket. The rising lower end is now broken while the Stochastics are rolling over and support the view of AUDUSD moving lower and retesting the support. However, at the time of writing the pair has attracted some buying at 4h Bollinger Bands.
The fundamental picture gives no reason to turn bullish on commodities or commodity currencies, and market participants wait for the Chinese PMI figure and the US NFP number to get further clarification on fundamentals. The economic growth in China has been trending lower. It is therefore likely that the trend will prevail until there are signs of a turn around. This applies to the long term trend in AUDUSD as well. However, based on the monthly chart the pair is now at the upper end of a potential turn around level, level that turned the price higher in 2009. Short term price is fluctuating above a support at 0.6938 – 0.6966 and a resistance at 0.7026. There should be intraday trading opportunities in side this band. If price moves below 0.6904 and there is no fast rally higher I expect the price to move beyond the latest lows. In the case of market rallying strongly from proximity of the low, the resistance bracket between 0.7138 – 0.7277 is likely to come into play.
Chief Market Analyst
About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
Traders and fund managers from around the world have benefited greatly from Janne’s technical analysis methods. The indicators and price action based trading models he has developed, have, after rigorous testing, proven to be invaluable in identifying high probability trades.
“My mission is to help you to become a confident and successful trader”
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.