AUD/USD – Aussie Unable to Break Out, Continues to Test 1.05 Line

AUD/USD continues to fluctuate, as the pair is currently treading very close to the 1.05 line. In the Asian session, AUD/USD pushed above 1.05, but then retracted, as it dipped below this important level in the European session. In Australian releases on Wednesday, HIA New Home Sales looked very sharp but Retail Sales was a disappointment. It is another quiet day in the US, with just two US releases – Crude Oil Inventories and the 10-year Bond Auction. There was a major development earlier on Tuesday, with an announcement that the Japanese government would purchase bonds from the European Stability Mechanism, which is the Eurozone’s bailout fund.

In the US, the markets breathed a sigh of relief last week, as the fiscal cliff agreement was reached in the US Congress. However, any celebrating would be premature, as it appears that this was just the first round of more bruising battles ahead. The hard-fought agreement, which was preceded by months of acrimony and bad blood between the Republicans and Democrats, was criticized by many analysts and economists as a deal comprised of the lowest common denominator which both sides could reluctantly compromise and agree on. However, the agreement left two critical issues for another day – the debt ceiling and spending cuts. The problem is, the clock on those issues is also winding down, as the debt ceiling will be reached in February, and action will have to be taken to avoid a default on the country’s debt. Otherwise, the real possibility of a US default will likely cause turmoil in the markets.

In economic releases, there was positive news for the Australian housing industry as the HIA New Homes indicator jumped 4.7% in December. This was the best performance since May, as the key indicator posted a gain for the second straight month. Economists credited the positive numbers on substantial rate-slashing by the Reserve Bank of Australia, which cut rates four times in 2012, most recently in December. However, sales of new homes is still low, and it will take more than one solid release to revive the slumping housing industry. Retail Sales was a disappointment, declining by 0.1%. The markets had anticipated a gain of 0.3%. There was more bad news, as job vacancies for the September-November period slumped to their lowest levels in May 2010. These weak figures point to a weak employment climate in Australia. The two US releases are not expected to have an impact on the currency markets.

According to a report out of China this week, the Chinese economy will overtake that of the United States by 2019. Although the report, issued by the Chinese Academy of Sciences, was scant on details, there is no arguing that the country continues to churn out exceptionally high growth rates, and could become an economic rival of the US. This has important implications for Australia, as China is its number one trading partner. Chinese Trade Balance will be released on Thursday, and the markets are expecting the monthly surplus to increase slightly from the previous reading of 19.6B.

AUD/USD for Wednesday, January 9, 2013

AUD/USD January 9 at 13:20 GMT

1.0514 H: 1.0523 L: 1.0487

AUD/USD Technical

In Wednesday trading, AUD/USD continued its pattern from the previous day, as it dropped below the 1.05 line early in the European session, only to reverse direction to cross above it. This movement has meant a lot of activity for the line at 1.0508, which is currently providing the pair with weak support. The next support level is at 1.0424. On the upside, 1.0568 continues to provide resistance. This is followed by 1.0605, which was last tested by the pair in September.

Current range: 1.0424 to 1.0508.

Further levels in both directions:
• Below: 1.0424, 1.0376, 1.0334, 1.0230, 1.0174, and 1.0080.
• Above: 1.0508, 1.0568, 1.0605, 1.0718, 1.0874 and 1.0961.

OANDA’s Open Position Ratios

The AUD/USD ratio continues to experience movement in favor of short positions. Trader bias now favors the short positions, but the long position component remains significant. This continuing shift in favor of short positions points to an expectation that the aussie will weaken against it US counterpart. The Australian dollar did lose some ground in Wednesday’s European session, as it dipped below the 1.05 line. However, it was unable to sustain this downward move, and the pair is back above 1.05. Will we see the pair again drop back below the 1.05 line?

The Australian dollar continues to fluctuate, and has been dipping above and below the 1.05 line for the past two days. It is currently slightly above this line, and this modest fluctuation could continue during the day.

AUD/USD Fundamentals

• 00:09 Australian HIA New Home Sales. Actual 4.7%
• 00:30 Australian Retail Sales. Estimate 0.3%. Actual -0.1%
• 15:30 US Crude Oil Inventories. Estimate. 0.9M
• 18:00 US 10-year Bond Auction

*Key releases are highlighted in bold
*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.