AUD/USD: Attempting To Hit 0.898 From 0.894 bounce

We have mixed economic numbers from Australia this morning. HIA New Home Sales showed a M/M fall of 4.7%, a reverse of fortune for June’s 3.4% gain. Private Capital Expenditures on the hand was more encouraging, with growing 4.0% in Q2 when analysts predict a flat quarter. This is also a positive change from previous quarter’s 4.1% shrinkage. Seeing as how AUD/USD is trading higher right now, it is easy to believe that the bullish influence from the increase in Private Capex is stronger than the bearish pull of Home Sales drop. But that notion is hard to support when we look at the immediate reaction to the individual news.

Looking at 1 min chart (not shown here), there was hardly any reaction when New Home Sales was released. On the other hand, the immediate reaction to the stronger Capex numbers was bullish, but bearish reaction took over almost immediately as well, claiming back the ~20 pips gain and more, ending the minute candle more than 5 pips lower. Prices did recover back subsequently, but we are still mostly trading around pre-announcement levels until after 10.00am SGT (10pm EDT) when prices started climbing up steadily again. Hence it is clear that prices are moving not due to fundamentals, but perhaps due to technical influences.

Hourly Chart
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Looking at hourly chart, we may be able to see what this technical influence is. It seems that flash rally post Private Capex announcement pushed prices into the Overhead Kumo, resulting in bearish rejection with the hourly candle closing outside of the Senkou Span A. However, it seems that the rebound from 0.894 support remains strong, and the determined bulls managed to push price back into the Kumo once again. The difference this time round is that the rally is a measured movement, and not catalyzed by the knee-jerk reaction. Once price is inside, the buoyancy of Kumo took over naturally, allowing price to remain afloat even though there is nothing bullish happening in the markets right now.

That being said, bias on the hourly chart is still bearish. With Stochastic readings being Overbought, and 0.898 resistance hanging overhead acting as a confluence with Senkou Span B, it will take a herculean effort for price to break 0.898. Even in the event which 0.898 is broken, we have 0.90 hanging above which is yet another strong resistance and will prove to be a challenge even with bullish pressure from the Kumo Breakout.

Daily Chart
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Nothing new from the daily chart other than Stochastic readings entering into the Oversold region. However, without clearing 0.90, current bearish pressure will remain, and a move back towards 0.885 is still possible.

Fundamentally, USD is slated to be stronger with tapering actions expected in 2013. On the AUD front, RBA continues to favor a weaker Aussie Dollar, and is also expected to drive rates lower once again in 2014 if not in the remainder of 2013. As such, it is difficult to see AUD/USD being able to climb back to earlier glories of above parity. Short-term bullish shock may still happen (e.g. no tapering action in September), but it is unlikely that a long-term bullish follow-through can happen with Australia’s economy heading lower.

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