G’day Forex Mates! Mr. Aussie is trying to “it” to the forex dance floor, but he seems to have hit a boundary . Let’s take a look at his moves as he dances against Ms.USA (US dollar), otherwise known as the AUD/USD pair’s forex trading strategy. What’s the economy of Australia like recently? How about the US economy? What are potential forex trading strategies for the pair? It’s time for a full-on, 4-step, Kangaroo style Diamond Analysis.
1- Australian economy ain’t doing that bad
While spending for the whole third quarter made moderate gains amid subdued price pressures, Australian retail sales posted a second month of solid growth in September. This is important because consumer spending has been the backbone of the Australian economy (and most other economies for that matter).
Aussie’s Trade Balance also came in better than expected and better than October’s reading, indicating that more goods and services were exported than imported. This is important for Mr. Aussie’s forex dance moves because export demand and currency demand are directly linked; Foreigners must buy the domestic currency to pay for the nation’s exports. Export demand also impacts production and prices at domestic manufacturers. This rebound in export volumes likely means economic growth accelerated last quarter after a worrying slowdown in the second quarter.
To top these off, the Reserve Bank of Australia (RBA) cited positive outlook on the economy of Australia when keeping interest rates steady at 2 per cent at its November policy meeting this week.
On the gloomy side however, Australia’s unemployment rate held steady at 6.2% for the month of September, but the seasonally adjusted labor force participation rate ticked lower to 64.9% from 65.0%. Meanwhile, employment change printed a net decrease of 5.1K jobs when it was expected to post a net increase of 7.2K jobs, which is the first monthly decline since April of this year.
Making this worse is the details of the jobs report, which showed that the decline was due to a loss 13.9K full-time jobs which was partly offset by an 8.9K gain in part-time jobs. That’s pretty bad because full-time jobs usually offer better pay and security, and by extension, higher levels of consumer confidence and consumer spending.
Despite this, our mates in the Land Down Under seem to be in good spirits and may even continue their Christmas shopping for the remaining of 2015, in order to celebrate with bikini Santa babes in style.
2- Fed’s Yellen expects US economy to continue growing
Our fab finance diva and Federal Reserve head Janet Yellen had an ultra important testimony on Wednesday which got Ms. USA dancing up on the forex dance floor. She bluntly said that the Fed could raise interest rates in December 2015, and that it could be appropriate!
To be fair, she did add that rates would rise only slowly from then on to nurture the U.S. economic recovery. Another Fed member, William Dudley, the influential president of the New York Fed and a permanent voter on policy, said later on Wednesday that he would “completely agree” with Yellen. December “is a live possibility, but we’ll see what the data shows.”
Looking at the data, on our end, we have both bad and good news in terms of growth, unemployment and consumer spending. While we saw worse than expected personal spending in October, on the bright side fewer and fewer people filed for jobless claims in October.
We only have a few more unemployment claims data coming out before the New Year Ball drops in NYC, and with these comments from the Fed, each and everyone of them could shake Ms. USA to her bones!
3- AUD/USD Struggling to Break Above a Resistance
With mainly positive news both for the Australian dollar and the US dollar, it’s no surprise that Mr. Aussie and Ms. USA have got into a tight competition, pulling each other back and forth. Remember that the ideal situation for a forex trend is when one currency in the pair is strong, and the other is weak. This was the case all the way from July 2014 to September 2015, when we saw the massive drops in the AUD/USD pair,because Mr. Aussie was in economic trouble and Ms. USA was projecting bright future. Now that the heads of both central banks are more or less optimistic about their economy, the downtrend continuation could get more challenging.
This is of course,unless RBA governor Mr. Stevens says something ultra negative in his speech today, scheduled for 11:25 PM GMT.
4-Trading Strategy: Waiting for a Technical Breakout
The AUD/USD seems to be trapped inside a Triangle forex chart pattern as it entered the flattening Ichimoku cloud beginning of October. Failing to reach the 23% Fibonacci retracement and resistance level of 0.75, the pair is now challenging a pivot point at 0.72. A breakout in either direction could set the tone for the pair’s direction for 2016.
With no clear trend-change signal in a long run, we can depend on range trading for now. For a bullish scenario, wait for a break above 0.72 and target the higher band of the triangle. Make sure you set your stop loss in order in case the market goes against you, and ALWAYS remember to set it a bit loose to avoid getting kicked out prematurely.
Here are the recommended supports and resistance levels* for long term forex trading strategies:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 0.70 | 0.73 | 0.75 |
| 0.67 | 0.72 | 0.79 |
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.
