The Aussie, ceteris paribus, will probably continue its current recovery versus the US dollar while against the pound sterling we are looking for a reversal in fortunes.
One thing to look out for in the week ahead will be the RBA minutes and commentary from RBA officials Debelle and Ellis.
The RBA’s more hawkish stance stands in contrast to the ‘rest of the field’ in which most central banks are shifting to a more dovish stance.
Analysts will therefore be looking for signs the RBA can no longer maintain this ‘against the grain’ optimism, and is moving back towards the herd consensus dovish view.
However, assuming this does not occur, the Aussie, ceteris paribus, will probably continue its current recovery versus the dollar, although against the pound the picture is more complicated, because the pound is showing tentative signs of reversal.
Clearly in relation to the AUD/USD pair the Federal Reserve’s meeting on Wednesday provides a major risk event, and there is probably a greater outside chance the Fed could surprise with a rate hike than most are expecting.
This would lead to an annihilation of the ill-fated bullish recovery in the AUD to USD rate and a renewal of the longer-term down trend.
On Tuesday the RBA March Meeting minutes will be released, and given the consistently hawkish stance of the RBA they are likely to be carefully scrutinised for confirmation of the extent of unanimity of views.
Later on Tuesday the Westpac Leading Index (month-on-month) in February is released (prev -0.04%).
On Wednesday Guy Debelle, RBA Assistant Governor, Financial Markets, will speak at the FX Week Australia conference in Sydney.
We could get some insight into where he sees the Australian dollar’s appropriate pricing, which could well hint at whether the currency’s recent strength is becoming an in issue.
Key Unemployment Data is due for release on Thursday - and after surging 0.2% to 6.0% in January - markets will be looking for a return to lower levels in support of the general and RBA’s positive outlook for the economy.
Later on Thursday Luci Ellis, Head of the RBA’s Financial Stability Department, will speak at the Financial Risk Day 2016 conference in Sydney.
The Commodity Rally Will be Key to the AUD’s Performance This Week
A major component in the Australian dollar’s recent revival has been the strong rally in commodities.
Iron ore, Australia’s chief resource, has now tipped above $60 per ton and although several analysts are sceptical about how long the recovery rally can last, there are no signs so far of any slacking off.
Oil has also established itself above (in the case of Brent, or just below in the case of WTI) the key $40 level, a huge improvement considering it was in January when the price was languishing in the 20s.
Clearly this is creating favourable winds for the Australian dollar which is slowly creeping higher versus the dollar, but is stalling versus the pound.
GBP/AUD Showing yet More Signs Short-Term Correction May Be On the Horizon
GBP/AUD had already been showing several tentative reversal signs. Now markets have gone and added two more.
The day of Wednesday March 10 was both a bullish Japanese Candlestick pattern named a “bullish engulfing” and also a more conventional key reversal day too.
A bullish engulfing occurs after a down-trend when a day opens at a new low but then rises and closes higher than the previous down-day’s open – thus essentially engulfing in its body the previous day’s open-close range. This is a short-term bullish signal.
The same day was also a key reversal which also occurs at the end of a trend, when the exchange rate makes a new low and then rebounds to make a high, which is higher than the previous day and a close which is above the previous day’s open. This is a potentially stronger medium term signal of reversal.
As has already been pointed out before with this pair, “ADX is at an extreme high of 50.50, and any reading over 50 signals the down-trend may be due a correction.
“ADX stands for ‘Average Directional Index’ and measures how ‘trending’ the market is. When it goes over 50 research has shown it is often a sign the trend is overextended.”
Another, indicator, the RSI, which is a momentum indicator, has now given a buy signal by moving from oversold to above the 30 level.
The pair has also reached a major support line in the form of the S1 monthly pivot at 1.8940.
Monthly pivots are levels of support or resistance calculated using the previous months high, low, close and open.
Traders use them as levels where they predict increased demand or supply and where prices often pause, bounce or sometimes even reverse trend.
The exchange rate has already broken above the peak highs of 1.9236, and is likely to continue higher to an immediate target at 1.9389.
Ideally I would want to see a break above the 1.9245 highs for re-confirmation of a move up to the first target at 1.9389.
There is still a chance, too that the current dominant down-trend may also continue, as long as it manages to break clearly below the S1 pivot.
This would be signalled by a move below 1.8850, with a downside target from there at 1.8500.
PS: Copy signals, Trade and Earn on Forex4you - https://www.share4you.com/en/?affid=0fd9105
