AUD/USD: Recovering From Post Retail Sales Decline

Aussie bears received yet more boosts this morning. First off the bat, we have neighbor NZD/USD collapsing more than 100 pips due to China banning milk powder from Australia and New Zealand over the weekend. Aussie wasn’t as detrimentally impaired as compared to NZD, but the sharp sell-off in NZD nonetheless has an impact on AUD, by virtue of being geographical neighbors and due to the spillover impact of USD strengthening from the whole fiasco. Prices took yet another beating in the form of lower than expected Retail Sales, which came in at 0.0% vs an anticipated 0.4% growth. Bears used this excuse to sell AUD/USD further, sending price below the 0.885 round figure slightly.

Hourly Chart
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However, in a show of rare bullish strength, prices actually bounced back. It is likely that the lower descending trendline support playing a part. This bullish impetus drove price back to last Friday’s consolidation zone between 0.889 – 0.892, breaking the higher descending trendline in the process. However, even though Stochastic readings are suggesting that a bullish cycle is currently underway, it is difficult to see current rally as anything else other than a corrective move, given the overall strong bearish sentiment both from technicals and fundamentals. Furthermore, price is currently pushing head on against the bearish Kumo, staying just outside of the Senkou Span A. Price would need to achieve eh bullish Kumo breakout and preferably survive a bearish pull back above the incumbent Kumo before any talks of longer bullish recovery can be discussed. Given that Stochastic readings are closing in on Overbought region, it is likely that price will reach Overbought by the time we are hitting Senkou Span B (Kumo Top). Hence making a difficult counter-trend move (which is not fundamentally supported) that much harder.

Daily Chart
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Daily Chart reiterates the importance of 0.90 resistance. Stochastic readings shows Stoch line crossing the Signal line from below, suggesting that a bullish cycle may be in the works. However, price will likely need to clear the 0.90 resistance before Stoch readings clear the 20.0 mark for a proper bull cycle signal. Even in the event that 0.90 and stoch 20.0 is cleared, the bullish action will still be regarded as “corrective” in nature. Similar to short-term chart, price will need to perform a bullish Kumo breakout before further bullish recovery can happen given the overall bearishness and the multitudes of support levels turned resistances along the way.

Fundamentally, RBA is expected to proceed with a rate cut tomorrow. Generally such over-anticipated rate decision would result in a bullish pullback instead after the event in a typical “buy the rumor, sell the news” maneuver. However, in this case, given current extreme bearishness, we could see limited bullish pullback, where price simply trades lower and stay lower. In the unlikely event where RBA decides to hold rates, AUD/USD will certainly rally up, but whether the rally can be reasonably sustained is another story altogether. Given the fact that AUD/USD bearishness has been due to Australia’s depressing economic fundamentals (coupled with worsening conditions in China), we could see price reverting back towards bearish trend quickly as bears look for good prices to sell into.

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