AUDUSD Forex Trading Strategies May 2016

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AUDUSD Forex Trading Strategies May 2016

AUDUSD Forex Trading Strategies May 2016

G’day mates! I hate to say “I told you so” but Mr. Aussie followed my prediction and reached our target of 0.78 end of April. However there are new developments around the world  and we may need to revise our AUDUSD forex trading strategies May 2016. Make sure you have checked your financial health before getting tempted to trade this naughty currency pair from the Land Down Under.

AUDUSD Forex Trading Strategies May 2016 | Mr. Aussie and Ms. USA Dancing on the Forex Dance Floor

1- Australia’s Economy

Here are key points which hammered Mr. Aussie and has helped with developing the AUDUSD forex trading strategies May 2016:

  • Reserve Bank of Australia cut rates from 2.0 percent to 1.75%: Our mates in the land down under have been moving and shaking, unlike other central banks who seem to be all talk! The Reserve Bank of Australia (RBA) pulled the trigger on interest rates on May 3rd. Although  many analysts saw it coming, the trading crowd hammered the rising Mr. Aussie as he danced against his major forex partners, including Ms. USA. According to the monetary policy statement by Mr. Stevens, inflationary pressures were the main reason why the cut rates.
  • Global Economy is Still Kinda Scary for the Aussies: Australia is heavily dependent on its trade activity. That’s why the well-being of the global economy has a strong impact on the demand for its commodity products. The RBA acknowledged that global growth forecasts have been revised a little lower recently but also noted that sentiment in financial markets has improved.When it comes Australia’s trading buddy China, policymakers confirmed that the PBOC’s efforts are starting to pay off, resulting in moderate growth in the world’s second largest economy. Still, RBA officials warned that “conditions have become more difficult for a number of emerging market economies” and “uncertainty about the global economic outlook” remains.
  • Moving the Economy’s Dependency Away from Mining Sector: RBA policymakers assessed that Australia is still in the middle of re-balancing its domestic economy away from a mining-led investments to non-mining activity.
  • Growth Continues, but Maybe at a More Moderate Pace: Australia’s GDP picked up over 2015, particularly in the second half of the year. Their labor market also improved. These indicate that growth is continuing in 2016, though probably at a more moderate pace. The statement mentioned that labor market indicators have been more mixed of late. For the month of March, most of the gains were seen in part-time hiring while productivity and earnings fell.
  • RBA Ain’t Happy with Strong Mr. Aussie: Just as he did in the last few statements, Governor Stevens reiterated that an appreciating exchange rate could complicate all the adjustments being made in the Australian economy. He explained that a low exchange rate has supported the trade sector. On the bright side, Stevens didn’t threaten to intervene in the forex market to limit Mr. Aussie’s gains.  As we  witnessed, the RBA rate cut already did all that work for them.

Bottom Line: Mr. Stevens was (almost) single handedly able to change the direction of Mr. Aussie’s movements on the forex dance floor. The main key to the rate cut was low inflation.

Keep an eye on...

  • RBA Meeting Minutes, Tuesday May 17: Full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee.
  • Jobs Report, Thursday May 19: Better than expected results would reduce risk of another rate cut

Next RBA rate decision is on June 7th.

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2- US Economy

April’s Non-Farm Payrolls (NFP) report finally gave Ms. USA a break from her downfall against most of her major dancing partners including Mr. Aussie.  While it looked pretty bad on the surface, looking more closely with a magnifying glass showed investors it wasn’t that bad after all. I mean, unemployment is at a decade low level for G-d’s sake, so how bad can the US economy be really?!

Here are some points, the good versus the bad when it comes to AUDUSD forex trading strategies May 2016:

The Bad

  • Weaker Employment Growth: We got a downside surprise since non-farm employment in April only saw a net increase of 160K, which is the lowest in seven months and way lower than the expected 200K increase. Not only that, the previous reading was revised lower to 208K from 215K as well.
  • Slow Job Growth in Service Sector: The number of service sector jobs added in March was revised lower from 199K, and this downgrade is the main reason why March’s NFP reading was also revised lower. The retail industry had a net decrease of 3.1K (+39K previous). The leisure and hospitality industry only saw a net increase of 2K jobs (24K previous).

The Good

  • Faster Wages Growth: Wages grew at 0.3% on a monthly basis.  This is faster than the previous month’s earnings growth of 0.2% which was  revised downward  from the original 0.3% . This translates to a year-on-year wage growth of 2.5% in April, which is faster than March’s 2.3% increase.
  • Gains in Manufacturing Jobs: After two consecutive months of losses, with March’s net loss of 29K jobs being the biggest ever since 2009, manufacturing finally saw a modest net increase of 4K jobs.
  • Jobless Rate Held Steady: I know many market noise producer *cough* media *cough* who whine about unemployment not going lower. But dudes, US unemployment at least remains in a better shape and has been holding steady right? Especially when you find out that the jobless rate held steady even though a whopping 562K workers decided to call it quits and get out of the labor force. This was one of the main reasons why the labor force participation rate dropped to 62.8% and broke four consecutive months of improving readings in the process.

One of the reasons why investors started buying US dollar after the NFP reports could be because they focused on the higher earnings instead. The US economy is currently near full employment, so wages would now be the focus.

What About Further Rate Hikes this year?

Warren Buffet is optimistic on the US economy. However in the light of the lower than expected NFP, most analysts no longer expect a rate hike in June. Instead, we might see a rate hike in September. 

Back in December Fed Head Janet Yellen said “To simply provide jobs for those who are newly entering the labor force probably requires under 100,000 jobs per month.” Numbers above that 100K floor mean that those who are unemployed or who left the labor force were getting “absorbed” into the U.S. economy. So we can all calm down as long as net gains in jobs is above 100K.

With that, the higher than expected unemployment isn’t that much of a speed bump. So the Fed is still on track for at least two rate hikes in 2016.

Keep an eye on…

  • FOMC Meeting Minutes on Wednesday May 18
  • Gross Domestic Product ( GDP ) on Friday May 27

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3- AUD/USD Technical Analysis

Now that we’ve crushed the fundamentals, let’s see what the technical point of the Invest Diva Diamond suggests.

  • Big Picture Monthly Chart: The pair seems to be in the midst of forming an ascending Double Top chart pattern dating back to January 2001. It was not able to break above the 0.78 resistance level and has taken a massive downturn from there. Keep in mind that 0.78 is the 23% Fibonacci  retracement level. With that, the pivot is currently at 0.71.

AUDUSD Forex Trading Strategies May 2016 – Monthly Technical Chart

  • Daily Chart Market Sentiment: IT’S CLOSE!!  The pair is right at the lower band of the ichimoku cloud and trying to break below it.  A confirmation of a break below this level could open doors for further drops towards 0.71.

AUDUSD Forex Trading Strategies May 2016 – Dailly Technical Analysis – Ichimoku Breakout Potential

4- AUDUSD Forex Trading Strategies May 2016

As a savvy Invest Diva student you should already be able to put the two and two together and come up with a trading strategy for the AUD/USD pair. But for our newbies and first time visitors, let me elaborate.

BIG POINTS: The RBA wants to keep Mr. Aussie low. Ms. USA seems to have reached a turning point to the upside. The AUD/USD pair is trying to break below the Ichimoku cloud on the daily chart. It remains under downward pressure on the monthly chart as well. With this, we have 4 points signaling further bearish moves.

Bearish scenario: We need a weak Mr. Aussie combined with a strong Ms. USA. Technically speaking, a confirmation of a break below the Ichimoku cloud could push the pair down to pivot of 0.71. Further, a break below 0.71 level could put the pair back on track with the Double Top formation, signaling a bearish outlook with target set at 0.63.

Bullish scenario: We need a strong Mr. Aussie combined with a weak Ms. USA. A positive Aussie GDP surprise could be the trigger. Or growth of Australia’s trading buddy, China. For Ms. USA the dooms day could come if Donald Trump is elected president.  In that case, a brand new cycle on the monthly chart could be created, forming a head and shoulder pattern on the monthly chart over the next few years.

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Remember you need to maintain enough margin in your account so a massive move against you won’t wipe out your account. You may need to hefge against other currency pairs if the trade is going against you. These are precisely the kind of stuff I teach in our weekly investing coaching lessons. Here are the important long-term levels to keep in mind for AUD/USD.

Support Levels Turning Point Resistance Levels
0.69 0.71 0.78
0.63 0.73 0.84