AUD/USD: Lower Than Expected Retail Sales Not Dampening Bulls

AUD/USD traded higher during Monday open, pushing from a May close of 0.957 to above 0.960 during the first 2 hours of trading. Price continue to climb higher, hitting 0.963 interim resistance and was threatening to test the descending trendline before a series of bad economic numbers pushed price down towards 0.96 once more.

Australia retail sales came in at 0.2%, slightly lower than the 0.3% expected but nonetheless a huge improvement from previous month’s contraction. The 0.2% print is also not bad if we compare historically, which ranges between -0.8% to 1.3% for the past 24 months, making 0.2% somewhere sitting in the middle. However, bears are not done yet, as there are more bad news installed – HSBC China Manufacturing PMI (Final) came in lower than the initial Flash estimate, coming in at 49.2 vs 49.6. This is also the first time the PMI numbers moved below 50.0 par level since Dec 2012, and puts doubt to the official Chinese figures released last Saturday which indicated a relatively strong 50.8.

Not that it matters though, as bulls manage to hold their own around 0.96, rebuffing a move lower and trade back higher towards the descending trendline. Price has yet to clear the 0.963 interim resistance, but certainly the ability to hold 0.96 despite 2 negative economic releases should not be scoffed at. Based on current momentum, the possibility to retest the descending trendline that has been in play since Mid April (see Daily Chart below) remains high, and the scenario to break the trendline and hit 0.969 – 0.970 previous swing high is in the cards.

Hourly Chart


From a technical perspective, if price continues to be capped below 0.963, the case for a bearish reversal as indicated via the Stochastic indicator becomes louder. Even if price manage to rally up from here, it is still possible that price may find the confluence between descending trendline and 0.965 interim resistance too strong to break, despite the fact that current bullish momentum is strong.

Speaking of the bullish momentum, there does not seem to have any fundamental reasons behind this bullish drive. Beside the negative economic data, Asian stocks are also mostly trading lower with Nikkei 225 trading at -2.31% while the Australia ASX index down by 0.16%. Certainly it is not risk appetite that is driving the move.

What about USD? Looking across other currencies, it seems that USD is weakening, and that make sense if the previously established positive correlation between US stocks and USD strength is still in play. However US Futures are trading marginally higher, not lower. This new inverse relationship was first noted yesterday, when USD traded strongly despite the fact that US stocks declined heavily towards the end of the May trading session. There are signs that this new inverse relationship is here to stay, but as we are only in the first few hours of June trading, traders may wish to be more cautious before proclaiming that as a done deal.

Daily Chart

Daily Chart remains heavily bearish, and that has to do with the weakening Aussie economy and the threat of further RBA rate cuts. With RBA meeting and GDP data coming on Tuesday and Wednesday respectively, we could easily see price moving back lower towards 0.94 support (not shown on chart) if 0.96 has been broken emphatically.