Is the Aussie Dollar About to Finally Catch a Break Thanks to the RBA?
This week's weekly market outlook will provide insights for DAX30 CFD, the US Dollar Index, the Euro, the Aussie Dollar, and Gold. We'll review the impact of the RBA interest rate decision on the aforementioned trading instruments, and consider how they might develop in the coming weeks. We will also review the upcoming economic announcements for the coming week.
Source: Economic Events Calendar 05 November - 09 November 2018 - Admiral Markets' Forex Calendar
DAX30 CFD
As pointed out in last week's weekly outlook, the DAX faced the option to close its gap around 11,500 points, but would stay technically bearish for as long as the bulls can't re-conquer the region around 11,850/900 points.
On Wednesday, the gap close finally happened and, with the close above 11,500 points on Thursday, chances seem good that the bulls will keep their current short-term momentum and push the DAX slightly higher.
As long as no potential negative political news hits the wire (e.g. a new escalation in the discussion around the Italian budget between Brussels and Rome or US president Trump reinforcing fears of an escalating trade war during the current midterm election campaigns) and volatility keeps on pushing down from its October highs, the DAX has a good chance to make back some of its lost ground.
Nevertheless, we have to take into account that, as long as the DAX can't make it back above the region around 11,850/900 points, we still face a chance for another test of the current yearly lows around 11,050 points.
Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST
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US Dollar
For the US Dollar, last week we pointed out that the Greenback has a good chance going for another attack of the region around 97.00 points and in fact did so on the last trading day of October, last Wednesday.
The interesting thing: the push higher came with backwind from a very solid ADP reading, but didn't last very long.
In fact, we didn't see a follow through and even after the NFPs on Friday came in very solid with 250,000 (exp. 190,000), the USD could only make back some of its losses the day before.
Even though we have to see whether this push lower on Thursday was only a short-term move, in general such a behaviour on good data has usually been a good indication for further weakness in the corresponding market and if the USD drops back below 96.00 points in the next days, a direct push lower towards the current trend support around 94.80/95.00 points seems possible and likely.
This is especially true if 10 -year US yields continue to correct and go for another test of the level around 3%.
In this context: even though we shouldn't expect too much from the FED rate decision on Wednesday in regards to a rate hike or a significant switch in the rhetoric of their statement (since it is not a live event), after the bigger drop in US equities in October, the statement will be probably scanned carefully in terms of a more dovish stance of the FED in the near future, leaving the USD vulnerable to a sharper drop, resulting out of a heavier selling wave from large speculators.
Source: Saturday 03 November 2018 9am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart
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Euro
The main shock for Euro bulls took place last Monday over the ticker: German chancellor Merkel will step down as leader of the CDU and not run for chancellor again in 2021.
The resulting political uncertainty made a test and drop below the current yearly lows in EUR/USD around 1.1300 very likely.
Interesting enough, the EUR/USD tested the region around 1.1300 on Wednesday after a solid ADP reading and pushed back above 1.1400, but couldn't close above that level after the USD caught a bid on solid NFP data.
Nevertheless, and similar to the paragraph above (even though the other way around), such a reaction to this bearish news for the Euro (we should always remember, that Germany can be seen as Europe's most powerful nation, especially in economic terms, and a political power vacuum would be potentially negative for the whole Eurozone) can be considered a sign of strength and as long as no new negative news around the Italian budget and escalating rhetoric between Brussels and Rome hits the wire in the upcoming days, EUR/USD has a serious chance to stabilise back above 1.1400.
But: from a technical perspective the picture stays bearish on a daily chart as long as EUR/USD trades below 1.1600/1630 and another attempt to break below 1.1300 to new yearly lows is on the table.
Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST
AUD
The Australian dollar faces an very interesting week ahead, too. After inflation data last Wednesday showed an easing to 1.9% year-on-year in the third quarter of 2018 from 2.1% in the previous period (even though numbers came in in line with market expectations), it came as a surprise to see the Aussie catching a bid against the USD into the weekly close.
The reason: the inflation data leaves little room for speculation around a rather sooner than later rate hike from the RBA. Even though they emphasised at their last meeting(s) that the next interest rate move will likely be up, the RBA shouldn't be seen in any rush to hike rates, given inflation remains below 2%.
But it seems as if AUD/USD bulls have finally woken up and signs of a bullish divergence in the RSI (14) in the daily chart point to an increased chance of an attempt to interrupt the sequence of lower highs and lows since the beginning of the year.
If the RBA meeting and the statement form the RBA now points to a more restrictive future from a monetary policy perspective and increasing chances of a rate hike in the first half of 2019 (which would come as a surprise since swap markets see only a 50% chance of a rate hike in H2/2019), AUD/USD could gain further momentum on the upside and go for at least a test of the region around the September highs around 0.7300/7330.
Nevertheless, from a technical perspective the outlook on a daily chart stays bearish in the AUD/USD as long as we trade below that level, making a test of the 2016 yearly lows around 0.6830 still possible, especially if the Aussie drops below the psychologically important and relevant 70 mark.
Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST
Gold
As already pointed out last week's market analysis before the NFPs, the outlook for Gold was quite positive coming into the NFPs and after they were released quite solid, Gold was still capable of holding most of its gains from Thursday.
If, as described in our article on Friday, Gold can now break above its October highs around 1,243/244 USD/ounce, a push higher in the upcoming days with a first target on the upside being seen around 1,260 USD/ounce and above at 1,280/285 USD/ounce seems likely.
On a daily chart, the picture for Gold stays positive as long as we trade above 1,180 USD/ounce, even though another push below 1,212 USD/ounce, last weeks lows would act as a clear, first warning sign for Gold bulls.
Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST
A push higher in Gold can still be driven by large speculators keeping on entering the scene again with the Commitment of Traders Report showing an increasing net-long exposure among those market participants, indicating potential further gains.
Source: Saturday 03 November 2018 9am CEST – Gold Future (GC) - Weekly Nearest OHLC Chart: Barchart
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
