Forex Market: AUD/USD trading outlook for January 4th

Thursday’s trade saw AUD/USD within the range of 0.7263-0.7327. The pair closed at 0.7280, shedding 0.10% on a daily basis, while extending the loss from the prior trading day. The daily high was a lower-high test of the high from December 10th. In weekly terms, AUD/USD added 0.65% during the current week, while extending the gain from the week ended on December 27th. The pair has advanced 0.72% during December to mark its third consecutive month of gains. Yet, it has been the smallest monthly rate of increase since February 2015, when the pair went up 0.55%.

In case the pair breaks through the 0.7310-0.7330 area of resistance, it may continue up for a test of the high from December 4th (0.7388). The latter appears in proximity to the 38.20% Fibonacci level (0.7394), which reflects the descent from May 14th high to September 4th low. On the other hand, support may be received close to the hourly 100-period EMA (0.7277) at first and then – at the hourly 200-period EMA (0.7258).

On Monday (January 4th) AUD/USD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Australia

AiG Performance of Manufacturing Index

At 22:30 GMT on Sunday the Australian Industry Group (AIG) is expected to announce the results from its survey on short-term and intermediate-term conditions in the sector of manufacturing in Australia during December. 200 manufacturers provide their assessment of overall business situation in the sector in terms of employment, new orders, output, prices and inventories. The seasonally adjusted Performance of Manufacturing Index (PMI) came in at a reading of 52.5 in November. It has been the highest level since October 2013, when a reading of 53.2 was reported. Values above the key level of 50.0 are indicative of optimism (expansion in activity). An improvement in the value of this indicator would have a moderate bullish effect on the Australian dollar.

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers Index for December probably confirmed the flash estimate of 51.3, which was reported on December 16th. If expectations were met, this would be the lowest PMI reading since October 2012, when the final gauge was reported at 51.0. In November the final seasonally adjusted PMI stood at 52.8, inching up from a preliminary value of 52.6.

According to preliminary data by Markit, ”Manufacturing production increased only moderately in December, with the rate of expansion the weakest for just over two years. Softer output growth was widely linked to a weaker-than-expected upturn in new business volumes and a corresponding drop in capacity pressures. Reflecting this, latest data highlighted a decrease in backlogs of work for the second month running, and the pace of decline was the fastest since late-2012.”

”Manufacturers were more cautious about their purchasing activity and inventory volumes in December. Input buying expanded at the slowest pace for just over two years, while pre-production stocks decreased for the first time since June 2014. Finished goods inventories rose marginally in December, but some manufacturers linked the upturn to weaker-than-expected sales at the end of the year”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for December confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.

Manufacturing PMI by the ISM

US gauge for manufacturing sector activity probably remained in the zone of contraction for a second consecutive month in December, coming in at 49.0, according to expectations, up from 48.6 in November. The latter has been the lowest PMI reading since June 2009, when the barometer was reported at a level of 44.8.

The New Orders Index plunged to 48.9 in November from 52.9 in October. The sub-gauge of production was reported at 49.2, falling from 52.9 in October. The index of employment rose to a value of 51.3 in November from 47.6 in the preceding month. The gauge of prices was at 35.5 in November, down from 39.0 in October, which suggested lower prices of raw materials for a 13th month in a row. In November, 5 manufacturing industries reported growth, 10 reported contraction and 3 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).

In case the PMI improved more than anticipated in December, this would have a strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Correlation with other Majors

Taking into account the business week ended on December 31st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

AUD/USD to USD/JPY (0.3611, or moderate)
AUD/USD to NZD/USD (0.3258, or moderate)
AUD/USD to USD/CHF (0.3047, or moderate)
AUD/USD to EUR/USD (-0.5189, or strong)
AUD/USD to GBP/USD (-0.5683, or strong)
AUD/USD to USD/CAD (-0.7888, or strong)

1. During the examined period AUD/USD moved strongly in the opposite direction with EUR/USD, GBP/USD and USD/CAD.

2. AUD/USD moved to a moderate extent in one and the same direction compared to USD/JPY, NZD/USD and USD/CHF during the week.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7290
R1 – 0.7317
R2 – 0.7354
R3 – 0.7381

S1 – 0.7253
S2 – 0.7226
S3 – 0.7189

By using the traditional method of calculation again, the weekly pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7283
R1 – 0.7324
R2 – 0.7369
R3 – 0.7410

S1 – 0.7238
S2 – 0.7197
S3 – 0.7152