Biggest Monthly Jump in Business Conditions Boosts the AUD/USD

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Biggest Monthly Jump in Business Conditions Boosts the AUD/USD

Confidence eroded as conditions improved:
Today, the National Australian Bank (NAB) reported its Business Confidence Index for October. The headline reading slid slightly from 5 to 4. While 4 matches the lowest reading this year, it is still positive. The spotlight from this report however is not the headline but rather the business conditions component, which rose at the fastest pace in the history of the index, jumping 12 points to 13.

NAB business survey

(source: full official report)

The improvement driven by sales and profits was relatively broad based –unlike the (short-lived) jump in July. While welcome we remain cautious re the sustainability of the improvement. For example it does not sit well with further falls in business confidence and only marginal improvement in capacity utilisation. While the falling AUD may have helped many sectors, it is probably also behind the large falls in the wholesale and transport/utilities sectors. The jump in conditions also saw employment improve somewhat – consistent with other labour market partials.” From the Official Report: NAB Business Survey October 2014

It is a bit surprising that the business confidence index continued to erode. So, while we are indeed seeing a bump in the Aussie after the report, we should be cautious.

AUD/USD Maintains Bullish Momentum: The AUD/USD ended last week with a rebound from its fresh low on the year at 0.8540. After a pullback to 0.8683, it fell during the 11/10 session. However, as we got started with the 11/11 session, the NAB report helped price hold above 0.86 and the 100- and 50-hour simple moving averages (SMAs), The 1H RSI hold above 40, which shows that the near-term bullish momentum is maintained.

Now, while we can expect some near-term bullish outlook, we should still maintain a bearish outlook for the medium-term. If price manages to ride back to 0.87, we might want to expect sellers again.

AUD/USD 1H Chart 11/11
audusd 1h chart 11/11
(click to enlarge)

Upside risk, bearish outlook: Now while we can expect sellers at 0.87, we should allow some elbow space for further upside risk in the very short-term. When we look at the 4H chart, we can see that price is basically in a bullish correction against last couple of week’s decline from 0.89. This decline broke the October consolidation range and opened up a bearish continuation scenario. Above 0.87, there could still be some room to pull back towards 0.8750.

Now, above the 0.8750 resistance, the bearish outlook might be in trouble. For now, let’s just anticipate some near-term bullish outlook on the back of broad USD-correction and a slight bump from the business conditions data. But, after that, we should expect sellers around 0.87 with upside risk to 0.8750 within the bearish outlook.

AUD/USD 4H Chart 11/11
audusd 4h chart 11/11

(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.