AUD USD arrives at key juncture ahead of US data

The AUD/USD is an interesting currency pair to watch this week amid all the volatility seen across the commodities complex. The commodity currency has so far managed to weather the storm faced by many underlying commodities – from aluminium to zinc, and of course copper. The Aussie has been boosted by recent strength in Australian data, most notably employment numbers, and after the Reserve Bank of Australia dropped its previously dovish rhetoric and said that the currency is adjusting to lower commodity prices. But is another sell-off now on the cards? With metal prices continuing to retreat, this certainly looks a good possibility, especially if this week’s US data – starting with today’s third quarter GDP release – generally surprise to the upside. On the other hand, if US data disappoints and/or key commodity prices rebound then the Aussie could extend its rally for a bit longer before it decides on its next move. On a side note, the Canadian dollar may be able to benefit if crude oil rallies, which looks to be a good possibility as we discussed yesterday.

The US third quarter GDP, due for release at 13:30 GMT (08:30 ET) is expected to be revised higher to show a quarter-over-quarter growth of 2.0% rather than 1.5% reported initially. There will also be a few other US macro pointers to look forward to this afternoon but the most important will most likely be the GDP and perhaps the CB Consumer Confidence which comes out at 15:00 GMT (10:00 ET). With US investors out on Thursday for the Thanksgiving holiday and some likely to book Friday off too, Wednesday will thus be a “data dump” when three days’ worth of data is released in one. So, Wednesday will be a very important day for the dollar and in turn the AUD/USD.

Looking at the daily chart of the AUD/USD and immediately a bearish trend line that has been in place since September of last year is catching my eye. This comes in around 0.7220/50, an area which was also not only support and resistance in the past but the 100-day moving average resides here, too. In other words, the AUD/USD is testing a major level of resistance and there is thus an increased chance for price to pullback from here, at least in the short-term anyway. For this potential downward move to gain any traction, however, we will need support and the 50-day moving average at 0.7150/60 (which previously resistance) to break down soon. Below here, there is not a lot of support until the psychologically-important 0.70 handle. So we could see a big move lower.

Alternatively, if the bears lose control of the abovementioned 0.7220/50 resistance area then the Aussie could extend its gains further in the short term as more sellers rush for the exists. A decisive breakout could see price at least test the previous range high around 0.7380. The key resistance area is further higher, between 0.7530 and 0.7580 which was formerly major support. Supporting the bullish view is the momentum indicator MACD, which has created a bullish crossover and is trying to move above zero.