Despite a better-than-expected performance in U.S. economic growth, which had been reported at 2.3 percent in the first quarter compared to 2.0 percent of forecast, the U.S. dollar surprisingly had a slight drop against some major currencies with a high volatility. It might be because of a slower path of economic growth, which was set to be 2.9 percent last quarter.
Technically the U.S. Dollar index finally earned its critical bullish breakout this past week. The DXY overtook 90.89 which represented the upper bounds of a zone of resistance shaped by a three-month range top. A further rally will see a resistance ahead on Jan. 9’s high of 92.370.
The Aussie dollar rallied on Friday after six consecutive days’ decline against the greenback, up 0.33 percent and closing at US$0.75781, coming back from the bottom since mid-December. The intraday price of AUD/USD declined a bit after China’s Manufacturing PMI was released to be 51.4, beating its forecast. With a strong economic connection with China, Australia would be delighted to see that China’s economy gives little sign that a slowdown is approaching, with services strengthening and manufacturing remaining robust. Therefore the pair may rally a bit over the short term period.
Keep a close eye on this week’s important events. The RBA’s monetary policy decision on Tuesday, expected to keep rates on hold, as they’ve been for more than 5.5 years. Another is the Federal Open Market Committee which begins a two-day meeting on Tuesday. Economists predict that Fed policy makers will probably keep their target rate for overnight bank lending in a range of 1.5 percent to 1.75 percent.
On a daily chart, the AUD/USD’s broad outlook remains bearish this week because RBA still keeps dovish tone unchanged, and also technically blocked by the lower line of the downtrend channel. However, referring to a support on late-November’s low, the pair seems to struggle to choose a direction. A downside breakout will expose next support level on Dec. 8’s low. On the other hand, a uptrend breakout will come to test next resistance around 0.7544.
Coupled with a use of Stochastic oscillator, a trend of coming-back over 20 gives a sign that it’s time to have a long position if it succeeds to breakout higher.
Chart 1: AUDUSD Daily
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