AUD/USD weekly outlook: Best week in 12 as bears get burned

Market drivers for AUD/USD, AUD/JPY

There is a lot of data next week, but the only one that counts a ‘top tier’ is US CPI. And as Fed Chair Jerome Powell for the first time hinted a rate cuts, traders will likely jump onto any signs of weak US economic date to drive the US dollar lower and inadvertently support AUD/USD. Therefore, US data is more likely to be a key driver for the Australian dollar than domestic data is.

And with further signs that the US economy is weakening with unemployment rising to a 2-year high, a softer set of CPI figures could see AUD/USD extends its rally.

AUD/USD futures – market positioning from the COT report:

Asset managers reached a record-level of net-short exposure to AUD/USD futures last week, and large speculators are near their own record level of bearish exposure. And as this data is only complete up to last Tuesday ahead of AUD/USD 2.7% rally, I can only assume short covering was a major driver behind the move. I therefore suspect we have seen a sentiment extreme, and that paints a bullish bias for AUD/USD over the coming weeks or even months on the assumption that the Fed may indeed begin cutting interests whilst the RBA remain unchanged.

AUD/USD technical analysis:

The broadly weaker US dollar saw AUD/USD rise as much as 2.7% in less than three days, before handing back most of Friday’s gains by the close. This has left a bearish pinbar on the daily timeframe, which suggests AUDUSD may retrace lower or at least enter a period of consolidation. Given the strong rally seen last week, a retracement lower would be welcomed by bulls looking to reload, so bulls could look

AUD/JPY technical analysis (daily chart):

The pair has been confined within a choppy range since it broken below 98, although Friday’s bearish outside day suggests it wants to break lower. Take note of Japan’s GDP data on Monday, because if there’s further signs of strength then it could bolster bets of a BOJ hike which could help with on AUD/JPY. Bears could consider fading into retracements within Friday’s range with a stop above last week’s high, in anticipation for a break beneath the 50% retracement level and move to the lower Keltner band / 100% projection ~95.50.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge