Weekly Recap and Outlook for AUDUSD - 7/19/2010

Written by ForexTraders.com on July 19, 2010 at 3:30 PM ET

AUDUSD last week gave back some of the impressive gains made in the previous week when the Aussie closed up 4% against the Greenback. The rate started the week on soft note despite Australian Home Loans which showed an increase of 1.9% versus the 0.7% consensus, with the previous number revised upward from -1.8% to -1.5%. Also, the Australian NAB Business Confidence Index declined a notch printing at 4 versus a previous reading of 5. AUDUSD then began climbing despite a report of a decline in copper and iron ore imports in China, Australia's biggest trading partner.

On Tuesday, the pair made its weekly high of 0.8870 as Australia's Westpac Consumer Sentiment Indicator came out with a reading of 11.1% versus a previous reading of -5.7%. The reading was the highest this year and indicates Australian consumers were more confident the economy is well on its way to recovering. Wednesday saw the rate continue higher after the Australian New Motor Vehicle Sales declined by only -1.2% month on month, versus a previous print of -3.9% which was revised downwards from -3.2%. AUDUSD also benefited from the U.S. FOMC's June meeting minutes which indicated the U.S. recovery might take longer than previously anticipated.

On Thursday, the rate declined considerably as Chinese second quarter GDP showed a growth of only 10.3% versus an expected increase of 10.5% and down from the previous quarter's 11.9% increase. Friday's trading saw AUDUSD sell off sharply to make its weekly low of 0.8661 before trading a bit higher to close the week at 0.8695, down 0.9% on the week.

Fundamental Outlook for AUDUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in Australia and United States are as follows:

Australia:

The economic calendar again contains some important data in Australia this coming week, and primarily features the RBA's Monetary Policy Meeting Minutes due out on Tuesday.

Monday is quiet, so Tuesday starts the week with the release of the highlighted Monetary Policy Meeting Minutes from the RBA, in addition to a speech by RBA Governor Stevens scheduled in Sydney.

Wednesday offers the important MI Leading Index (last 0.0% m/m), as well as the tentatively scheduled NAB Quarterly Business Confidence survey (last 17).

Thursday has nothing of note due out, and Friday ends the week with Import Prices (1.0% q/q).

United States:

This week's economic release calendar for the United States calms down significantly versus last week, but it features some interesting policymaker speeches, as well as important data for forex traders on the U.S. housing market. In terms of economic data, the calendar features Tuesday's Building Permits and Thursday's Existing Home Sales releases.

The week commences on Monday with a speech by FOMC Member Duke scheduled in Virginia, as well as the release of the NAHB Housing Market Index (16).

Tuesday has the highlighted Building Permits (0.57M) data, as well as Housing Starts (0.58M) and testimony by FOMC Member Tarullo on Financial Regulation before the Senate Banking Committee scheduled in Washington, D.C.

Wednesday offers important testimony by Federal Reserve Chairman Ben Bernanke on the semi-annual monetary policy report before the Senate Banking Committee, in Washington, D.C.

Thursday is especially active with Initial Jobless Claims (453K), the highlighted Existing Home Sales (5.15M) data, the CB Leading Index (-0.3% m/m), the HPI (-0.3% m/m), plus more testimony by Fed Chairman Bernanke on the monetary policy report, this time before the House Financial Services Committee, in Washington, D.C.

Thursday ends the week since Friday has nothing notable due out.

Technical Outlook for AUDUSD

On the technical front, AUDUSD rose initially last week to make a new high within its recent corrective upwards trend at 0.8870. In doing so, it just bested the 0.8858 high seen on June 21^st that was just ahead of the key 61.8% Fibonacci Retracement level at 0.8883 of the down move from 0.9388 to 0.8066. The rate then came off sharply to 0.8681 and closed the week just higher at 0.8695, down -0.9% overall.

Furthermore, the rate's key 200-day Moving Average now comes in above the recent price action at 0.8973, and its slope remains still more or less flat, after previously sloping positively. This gives a neutral to bearish medium term outlook for the Aussie.

In addition, AUDUSD's 14-day RSI indicator currently comes in at 52. Although pretty much in the central part of neutral territory, this indicator continues to support corrective upward price action since it has been demonstrating an overall upward trend since the May 20th low of 0.8071, including at the most recent 0.8870 high.

From an Elliott Wave perspective, the initial three wave upward move that ran from 0.8066 to 0.8858 seems like an A wave that has since corrected in a B wave to 0.8315, just under the key 61.8% retracement level of A at 0.8369. The current rally that has so far attained 0.8870 would then be the C wave in this scenario. Fibonacci projection ratios for this upward corrective move come in at 1: 1 = 0.9107, 1: 1.236 = 0.9294, 1: 1.382 = 0.9410, 1: 1.5 = 0.9503, 1: 1.618 = 0.9596, and 1: 2 = 0.9899. Furthermore, this C wave is currently close to testing the 61.8% retracement level of the down move from 0.9388 to 0.8066 at 0.8883, where a sustained break would argue for higher levels targeting 0.9388.

Resistance for AUDUSD shows on the chart at 0.8858/70, 0.9077 and 0.9388. Support is indicated at 0.8681/82, 0.8565 and 0.8315/16.

Overall, this scenario argues for further upside in AUDUSD over the coming week, although traders should watch the 14-day RSI for divergence versus the price on any new highs which could signal that the current rally is waning in strength.

Figure 1: Daily candlestick chart of AUDUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.