Aussie Dollar Traders Waiting for Bullish News from RBA

The AUD USD closed higher for the week, but the pace of therally was slowed by the rangebound trade in the U.S. equity markets. Some tradersalso feel the Aussie Dollar is overbought in the short-run while others believethat the expected 25 basis point hike in the benchmark interest rate by theReserve Bank of Australiais already priced in. The RBA meets on October 5.

The AUD USD closed higher for the week, but the pace of therally was slowed by the rangebound trade in the U.S. equity markets. Some tradersalso feel the Aussie Dollar is overbought in the short-run while others believethat the expected 25 basis point hike in the benchmark interest rate by theReserve Bank of Australiais already priced in. The RBA meets on October 5.

In addition to the rate hike, traders want to hear thatadditional hikes will follow shortly in order for the Aussie to breakout aboveresistance at .9850. Look for selling pressure to begin if the RBA fails toraise rates or hint at future hikes.

Fundamentally, the Australian Dollar is expected to remainunderpinned by bullish economic news from China. Although Australia boasts of a strong banking system, arobust mining business and a central bank that has been aggressively raisingrates, it is still very reliant on China for economic growth.

Technically, the Aussie Dollar remains entrenched in anuptrend. Upside momentum has been slowing, but no solid sign of a top hasdeveloped. At this point on the chart and because of short-term overboughtindicators, this market needs a catalyst to propel it through the last main topat .9849. Hopefully the bulls will get the news they are waiting for in thecentral bank statement.

The EUR USD finished the week and month sharply higher. Thedriving force behind the spectacular rally was the fact the U.S. FederalReserve green lit the move earlier in the month at its last Federal Open MarketCommittee meeting by hinting at another round of additional quantitativeeasing.

The Euro finished the week by soaring all session Friday, hittinga new-six month high, as a report indicating brewing developing weakness in theU.S. manufacturing sector supported speculators betting on additionalquantitative easing by the Federal Reserve.

Traders have been driving the Euro higher on the thoughtthat the Fed will have to resume large-scale purchases of Treasury Bonds in aneffort to provide liquidity to the economy to keep the recovery fromderailing.

The Dollar has been under relentless pressure since theFederal Open Market Committee meeting several weeks ago. At this meeting theFed hinted strongly about resuming its asset-buyback program, also known asquantitative easing. As long as QE remains on the table no one wants to holdDollars.

This morning, the Institute for Supply Management’s Index ofU.S. manufacturing activity fell to 54.4 in September from 56.3 in August. Thenumber was not low enough to warrant fear of a double-dip recession, but notstrong enough for the Fed to remove the threat of Fed QE.

The Greenback remained under pressure most of the day eventhough the Reuters/University of Michigan’sFinal Consumer Sentiment report was revised upward to 68.2 from 66.6 and U.S.Consumer Spending rose to 0.4% in August, while incomes rose 0.5%.

Euro traders also shrugged off a report confirming aslowdown in the pace of manufacturing growth and an elevated regionalunemployment rate of 10.1% in August.

This meant that traders are more concerned about theprospects of fresh QE by the Fed than a slowdown in the Euro Zone economy.

Technically, the Euro remains on pace to reach a majorFibonacci Retracement Level at 1.3896. There may be a technical bounce becauseof profit-taking at this level, but the trend should remain strong unless the50% level at 1.3510 is violated.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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