Originally published by AxiTrader
The Australian dollar is sitting at 0.7684 this morning after running up to a high around 0.7712 on Friday after better than expected Chinese PMI data gave the bulls a solid reason to test overhead resistance.
But, like so many other US dollar pairs right now, the AUD/USD was unable to kick through that solid overhead resistance as traders backed off a little as we entered what is a huge make or break week of data for the US dollar and recent price appreciations against it.
Of course it's not just about US data.
Australia itself has a huge raft of data to be released this week. Building approvals, monthly inflation data and ANZ job ads kick of the week today before the RBA board meets tomorrow.
No one really expects the RBA to change rates from the current setting of 1.5%. But there are plenty who now believe governor Lowe will follow the hawkish tones we've seen from his offshore central bank counterparts recently.
When you think about the construction of his statement he is likely to reiterate that the global economy is picking up, that China continues to do okay, and the prospects for trading partner growth seem reasonable. He's also likely to highlight that employment has been okay recently.
But it's also clear that the governor still has concerns about financial stability, household debt, and consumption.
That means tomorrow's retail sales for May is perhaps the key data point for the week. If consumers are the weak spot, or at least the potential week spot, in the economy then this data is going to be important for the outlook.
As is the Aussie dollar itself.
The governor is likely to not that a further strengthening in the Australian dollar could "complicate" the economic transition Australia has been going through. Last month he said "an appreciating exchange rate would complicate this adjustment". Will he harden up this statement given he saw what happened to the New Zealand dollar after Governor Wheeler was read as less dovish about the kiwi than markets thought?
What ever he says and how he says it will impact the Aussie.
Turning now to the price action and it is worth noting that the failure to break the downtrend line from the April 2016 high Friday but that equally the pullback has been fairly muted. No doubt that is because the US dollar remains weak and base metals and iron ore remain well supported via the positive feedback of a weaker US dollar but also the Chinese data Friday.
That's a double positive for the Aussie dollar - even with the failure so far.
The question for traders is whether the trend line will break and the AUD/USD will run toward the fibonacci extension of the last move at 0.7735 or perhaps the 2017 high around 0.7750.
It's an open question.
For the moment, on the 4 hours, 0.7666 is the level I'm watching. If it goes offered a pullback to 0.7643 (38.2% of the latest up move on the 4 hours) is in the frame with the breakout level of 0.7635 just below it.
On the dailies the levels I've talked about above are key. Prices look overcooked. But I'm yet to get a sell signal.
Here's the daily chart:
Have a great day's trading.