Short term
Trade view / 06 June 2016 at 3:00 GMT

AUDUSD: The Aussie has recovery potential

Managing Director / Technical Research Limited
New Zealand

After last week’s positive GDP numbers, traders are applying a low probability to the Reserve Bank of Australia cutting its 2% official cash rate at tomorrow’s policy review meeting.

However, having issued inflation forecasts a month ago that assumed “market pricing” (the cash rate heading down to 1.75% in due course), the RBA is likely to maintain its easing bias in the post-meeting statement, albeit with no urgency.

August looks a better bet for a rate cut, after the second quarter quarter CPI number has been released (July 27) and taken into account in the updated forecasts that the RBA staff will present to the Board at that meeting.

On the other side of the AUDUSD cross, traders await Fed Chair Yellen’s speech later today. After signalling “on your marks” for a rate increase a week ago, she will likely be more circumspect on this occasion following the big jobs number miss on Friday.
Management and risk description

From an Elliott Wave perspective, already this year the Aussie has rallied in an impulsive (Bullish) 5-wave sequence from 0.6825 - 0.7835 and has corrected within the range of the Fibonacci golden ratio, on last week’s 0.7150 low (refer daily chart below).

Last week saw the AUD recover as anticipated and on Friday it completed a 3-week Inverse Head and Shoulders bottoming pattern (see daily chart). Today, support lies at 0.7315/0.7275 to yield the resumption of its recovery toward the 0.7480 level over coming days.


Entry: Any dip to around the 0.7300 level today is seen as a buying opportunity today.

0.7258, initially.


Time horizon:
Allow several days for target to be met.

AUDUSD daily chart (click to expand)

AUDUSD weekly chart

Source: Both charts, ThomsonReuters

— Edited by Adam Courtenay

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