Chart of the day: bearish AUDUSD

Bearish AUDUSD – AUD: RBA kept cash rate steady, opened door for easing if needed: The RBA left cash rate unchanged at a record low of 0.75% as widely expected and still leaves the door opened for further easing if needed. The central bank said that the outlook for Australian economy is little changed from three months ago and a “gentle turning point” appears to have been reached. The economy is expected to grow 2.25% in 2019, and inflation is expected to gradually pick up and be close to 2% in 2020 and 2021. The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector are expected to support growth. The main source of domestic uncertainty remains the outlook for consumption. RBA concluded that the easing of monetary policy since June is supporting employment and income growth in Australia as well as a return of inflation to its medium-term target range. It will continue to monitor development, including that of the labour market and is “prepared to ease monetary policy further if needed”. Taking into account the more RBA’s optimistic albeit still dovish language and barring from any escalation in the current US-China trade dispute, markets expect the RBA to keep the cash rate steady at its December meeting this year.

USD: Solid US ISM Non-manufacturing reading highlights services sector strength: The ISM Non-manufacturing index added 2pts to register a solid 54.7 reading in October (Sep: 52.6), reflecting an upbeat outlook for the services sector leading up to the holiday season and a firm sign that a strong labour market will continue to support the industry in general. The gain in the headline index was led by the higher activity/production, new orders and employment. On a separate note, the IHS Markit Services PMI however slipped to 50.6 in October (Sep: 50.9) to indicate a slowdown in services activity.

From a technical and trading perspective the AUDUSD has tested pivotal resistance at .6920 which retains symmetry swing and Fibonacci retracement significance. Since testing this resistance area we have witnessed two bearish key reversal days, with closes below the near term VWAP, as such I am looking for downside follow through to open short positions, initially targeting the monthly pivot and weekly S1 at .6830, where I would remove my risk on the ticket (moving stops to entry), if price fails to find support at the monthly pivot, I anticipate an extended decline to test bids towards .6750.

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