audnzd potential medium term up move remains intact above 1 0440 support 1834602016

Tomorrow, 18 October 2016, there will be a bunch of key China economic data releases at 0200 GMT as follow:

• Retail Sales for Sep (10.6% y/y consensus) with 10.6% y/y/ seen in Aug
• Fixed Asset Investment for Sep (8.2% y/y consensus) with 8.1% y/y seen in Aug
• Industrial Production for Sep (6.4% y/y consensus) with 6.3% y/y seen in Aug
• Q3 GDP (6.7% y/y & 1.8% q/q consensus) with 6.7% y/y & 1.8% q/q seen in Q2

Market participants will be paying close attention to these data given China’s increasing importance towards global growth and any signs of “hard landing” will not bode well for risk assets.

Given some recent upbeat data, tomorrow numbers are likely to be in line with consensus and may even beat it by a notch. Firstly, production price inflation (PPI) for September increased by 0.1% y/y which has managed to return to positive territory for the first time since 2012. Secondly, the Caixin Manufacturing PMI recorded a reading of 50.1 in September which was the third consecutive month of expansion (a reading above 50) since July 2016. All these observations are indicating some further upside for industrial production.

Given that the China stock market has continued to be stable (in a sideways environment) which is likely not to cause a “dent” in consumer confidence. Therefore, retail sales growth is likely to remain in a stable mode as well.

Lastly, fiscal spending has continued to increase as it rose by 10.3 % y/y in August 2016 following a 0.3% y/y growth in Julyand the property sector has continued to show strength despite the recent government led cooling measures. Therefore, a potential recovery in fixed asset investment is expected on the cards.

The Aussie dollar (AUD) is likely to be supported in the medium-term if these China related economic data continues to show signs of stabilisation given that the health of the China’s economy is one of the main drivers of Australia’s fortunes.

Let’s us now take a deep-dive into the AUD/NZD cross from a technical analysis perspective.

AUD/NZD – Technical Outlook

(Click to enlarge charts)

Key elements

• Since hitting a high of 1.3795 on Mar 2011, the AUD/NZD cross has been evolving within a major long-term bearish channel with the upper boundary acting as resistance at 1.1087/1295
• The aforementioned major resistance zone of 1.1087/1295 also confluences with a former major trend ascending trendline support from the major swing low area of December 2005 now turns pull-back resistance (depicted in dotted red) and a Fibonacci cluster (see weekly chart).
• Since hitting a parity low of 1.0000 on Mar 2015, the AUD/USD has been evolving within a “triangle range” configuration with the top of the range coming in at 1.1087 as well (see daily & weekly charts).
• Momentum studies are positive as seen from both the weekly and daily RSI oscillators. These oscillators are still holding above their respective supports and still have room to manoeuvre to the upside before reaching the extreme overbought levels.
• The key medium-term support now rests at 1.04400 which is defined by the former major swing low area of December 2005 and the 61.8% Fibonacci retracement of the recent up move from 13 September 2016 low.

Key levels (1 to 3 weeks)

Intermediate support: 1.05800

Pivot (key support): 1.04400

Resistances: 1.0772, 1.1087 & 1.1295

Next support: 1.0240

Conclusion

As long as the 1.04400 medium-term pivotal support holds and a break above the 1.07720 intermediate resistance, the AUD/NZD cross is likely to continue its on-going medium-term up move towards the “triangle range” top at 1.0870 with a maximum limit set at 1.1295.

On the other hand, failure to hold above the 1.04400 medium-term pivotal support may negate the preferred bullish tone for a slide to retest the “triangle range” support at 1.0240.

Charts are from eSignal

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.