Looking for direction of the next big move of the Australian dollar
The Australian dollar has somewhat stabilized this week after closing in on January's lows around 0.8660. The next move will largely depend on data out of the US, but for now it seems that there is an inside potential. What will make us take a position here is a break above the downward trend line which we have highlighted on our chart.
We would be buying daily calls for tonight and tomorrow if we see this pair close on an hourly basis above the trendily which we see coming down to the 0.8755-60 area. Any close above 0.8760 will warrant a move to the upside which will result in an upside move towards 0.8800.
The fundamental reason for this trade is the weak economic data we have seen from the US lately with the only bright light being the number of new homes sold last week. Today we got indications that consumer sentiment is the next shoe to drop as the number came in way weaker than expected.
Having in mind that we have non-farm payrolls incoming on Friday, the risks are rising for the US dollar as it has already been performing very strongly in the past 10 weeks or so. This long term trend could only persist if we see strong employment data, and at this point in time this is less likely than two weeks ago.
Last month we have already seen a very week number with new jobs coming in around 140,000. The figure was dismissed as too weak to be truth... well we think that we could see an equally weak number this week. As the number nears, we will most certainly be preparing for some big players to take profits on their long USD positions.
If we look at the chart, the only scenario which could disrupt this trade materially is an hourly close below the 0.8700 figure. Early tomorrow morning we are getting another batch of Australian data, as the August retail sales figure is expected to mark a 0.4% rise from previous levels.
Caution with volatility around the number is advised as only an hourly break below or above the levels we mentioned will trigger a trade.