Tuesday, June 7, 2016

AUD-USD Testing Ichimoku: Aussie- Dollar Forex Trading Strategy

G'Day Mates! Mr. Aussie (Australian dollar, AUD) has been in a good mood so far in June. The economy of the Land Down Under saw a juicy acceleration in Q1 2016. However Ms. USA (US dollar, USD) has been facing her biggest nightmare. Therefore AUD/USD has been dancing upwards on the forex dance floor. On the other hand, the pair is about to hit a massive cloud resistance. Yep it's about to happen: AUD USD testing Ichimoku. Can Ms. USA get back in charge and push the pair down again?  It is time to pull an Invest Diva Diamond[1]  Analysis and build a trading strategy for June 2016.

1- Australia's Economy

The Reserve Bank of Australia kept rates unchanged on Tuesday. In a statement, they signaled they are in no rush to cut interest rates again. RBA governor Glenn Stevens said in the statement accompanying Tuesday's decision[2] that "holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time".

So let's put the good with the bad when it comes to Australia's economy:

Good Stuff

  • Australia's economy grew at an accelerated pace in Q1 2016, which is good news for the RBA since it was expecting GDP to grow at a more moderate pace when it announced a surprise rate cut during the May 3 monetary policy decision.
  • The housing market is still healthy. The continuing decline in housing loans to investors may mean that the threat of a housing bubble continues to subside.
  • Business loans accelerated further, which would hopefully translate to more business investment that would make the transition away from the mining sector faster and easier.
  •  Trade is starting Q2 on a good footing, since the current trade deficit is the narrowest since February 2015

Bad Stuff

  • Employment numbers for April, the first Q2 month, looked good on the surface but didn't look so pleasant when looking at the details. Especially the continuing loss of full-time jobs and the slide in monthly hours worked.
  • The not-so-good unemployment is probably beginning to have an effect on consumer spending since retail sales took a small hit in April.
  • Business sentiment and confidence deteriorated in April.
  • TD Securities Inflation for May was reduced to -0.2%.

Overall, Australia's employment data aren't all that good and signs are beginning to show that they're affecting consumer spending, but other aspects of Australia's economy still look promising. Continued lower wages and lower consumer spending may have more effect on inflation and that's one of the RBA's major concerns.

Keep an eye on...

  • Consumer Inflation Expectation on Tuesday June 14
  • Jobs report on Thursday June 16
  • Housing Price Index on Tuesday June 21
  • New Home Sales on Wednesday June 29

2- US Economy

Ok so the Non-Farm Payrolls (NFP) numbers came out and Ms. USA panicked. To top that,  our Fed gal pal Janet Yellen affirmed on Monday that the central bank won't be raising short-term interest rates until new uncertainties about the economic outlook are resolved.

The May NFP report was mixed on the surface, but pretty horrible when you look at the details or if you put the numbers in their proper context. Wages grew at a steady yet slightly lower pace, but that was expected. What wasn't expected was that non-farm payrolls would disappoint.

Regarding the disappointing NFP reading, the reaction to the very poor reading was likely amplified by the fact that the reading was below the 100K floor. Why does that 100K floor matter, you ask? This 100K mark is important because U.S. Fed Head Yellen said back in December[3] that "To simply provide jobs for those who are newly entering the labor force probably requires under 100,000 jobs per month." So there are no problems, so long as the U.S. economy can generate at least 100K jobs per month.

Previous Fed statements had revealed that a future rate hike (including the possibility of a June rate hike) hinges on three economic conditions, which are as follows:

  • A pickup in growth
  • Improving labor market conditions
  • Stronger inflation readings

And since the NFP reading came in below the 100K floor, then that means that the first condition is under threat while the second condition has been blown out of the water (for now at least), which gives us three very pessimistic conclusions:

  • A June rate hike is very likely no longer in the cards
  • The probability of a July rate hike is lower
  • There's likely an underlying weakness in the U.S. economy

Given the above, it's no wonder why Ms. USA panicked the way she did.

So what now? Will Ms. USA just pack up her bags and start traveling to the south against her forex counter parts?

One slightly good news this week was that  the Unit Labor Cost released by the Bureau of Labor Statistics, Department of Labor[4] showed an increase of total cost of employing a labor force. It can serve as an indicator of trends in production costs, share prices, and inflation, which made Ms.USA feel a bit better on the forex dance floor.

But with all this, are your rate hike expectations changed? Share your comments here[5].

Coming up...

  • US Retail Sales Tuesday June 14
  • FOMC Rate Decision Wednesday June 15
  • GDP report Tuesday June 28

3- Technical Analysis | AUD USD Testing Ichimoku

Now that we've crushed the fundamentals, let's see what the technical[6] point of the Invest Diva Diamond[7]  suggests for a AUD/USD Forex trading strategy.

Big Picture Monthly Chart: The pair remains below the ichimoku cloud[8], supported by an ascending neckline of an ascending Double Top chart pattern. Resistance remains at 23% Fibonacci[9] retracement level at 0.78.

Daily Chart Market Sentiment: Can you see AUD USD testing ichimoku cloud[10] on the daily chart?  Not only this is a very important level from an Ichimoku point of view, But the bottom Ichimoku band also falls on 38% Fibonacci. So a break above this could be a big deal.  However note that the next period Ichimoku is a declining cloud which could be an indication than even a break above the Ichimoku cloud could be a temporary move.

4- AUD/USD Forex Trading Strategy for June 2016

As a savvy Invest Diva student[11] you should already be able to put the two and two together and come up with your own AUD/USD Forex Trading Strategy. But for our newbies and first time visitors, let me elaborate.

While current economic data support the recent up-moves in AUD/USD, the pair has a great barrier to break through. Combining the big- picture and market sentiment, we could expect the pair to continue to range between 0.78 and 0.71. While a no-rate hike- scenario might have already been priced in the US dollar weakness, US GDP data could be the next trigger.

[12]

Bearish triggers: 

  • AUD USD testing Ichimoku continues - Failure to break through Ichimoku
  • Hawkish Fed and amazing US economic data
  • Worse than expected Australian economic data

Bullish[13] triggers: 

  • Better Australian jobs data
  • No June rate hike from Fed
  • Worse than expected US economic data in June
  • AUD/USD breaking above Ichimoku

Summary: Currently we are waiting for a confirmation of further bullish signal for AUD/USD. Raneg trading between 0.78 and 0.71 could be a good medium term forex strategy. To learn how to manage your portfolio, or to learn about other currency pairs, stocks and ETFs, book your  investment coaching session[14] with me this week.

Here are the important AUD/USD  approximate levels to keep an eye on:

Support Levels Turning Point Resistance Levels
0.71 0.7440 0.78
0.6350 0.78 0.84

This article was originally published on InvestDiva.com[15].

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



References

  1. ^ Invest Diva Diamond (investdiva.com)
  2. ^ statement accompanying Tuesday's decision (www.rba.gov.au)
  3. ^ Yellen sa id back in December (www.reuters.com)
  4. ^ Bureau of Labor Statistics, Department of Labor (www.bls.gov)
  5. ^ here (www.facebook.com)
  6. ^ technical (investdiva.com)
  7. ^ Invest Diva Diamond (investdiva.com)
  8. ^ ichimoku cloud (investdiva.com)
  9. ^ Fibonacci (investdiva.com)
  10. ^ ichimoku cloud (investdiva.com)
  11. ^ Invest Diva student (investdiva.com)
  12. ^ (kiana3.typeform.com)
  13. ^ Bullish (investdiva.com)
  14. ^ investment coaching session (investdiva.com)
  15. ^ This article was originally published on InvestDiva.com (investdiva.com)

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