US dollar is weak, AUD/USD better bid

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
    Likes Received:
    FXStreet - AUD/USD has managed to hold the better bid theme while markets are selling out of the dollar while investors are figuring that the US economy is a lot weaker than forecast.

    Can the Fed keep hiking?

    The Fed may need to hold off from raising rates throughout 2016 while the GDP estimate for Q4 in the US was just 0.7% while US stocks are in a correction as well. Data are coming out badly in the US overall.

    "We find evidence to suggest that equity markets provide limited signals to the economy during a bull market. But, as an equity bear market builds, equities offer a signal over and above the macro data. This may risk accelerating GDP forecast downgrades if equities do not rally from here...

    The release of much of this downbeat data comes at a critical juncture, as data released over the next six weeks will be key to setting the tone for when the next Fed hike can come," explained analysts at TD Securities.

    The US dollar is weak, why?

    Manufacturing is clearly in a recession, putting the US in an industrial recession while consumers are sustained by credit with an artificially high dollar within a bubble.

    Jobs, however, are regarded as proof that the US economy is strong, but the participation rate and quality jobs should also be looked into, not just the headline while wages are more or less stagnant.

    December included a lot of part-time jobs, such as Santa Claus temporary positions in the shopping malls, but 292k was way above estimates and the prior two months were revised 50k a month each leaving a very strong quarter with 200k more jobs in the quarter than people had anticipated. This is good news for the US dollar short-term, but the numbers are dubious when the rest of the data and the economy is running just above 0% growth.

    Tomorrow we will have the nonfarm payrolls for January. Valeria Bednarik, chief analyst at FXStreet explained in her forecast, "The US economy is expected to have added 190K new jobs in January, compared to the 292K added in December. The unemployment rate is expected to remain steady at 5%, whilst average hourly earnings, monthly basis, are expected to rise by 0.3%. It won't be strange to see a revision of December headline number and if the release misses expectations, the most likely scenario will be another leg lower for the greenback against its major rivals."

    Nonfarm Payrolls preview

    AUD/USD levels

    AUD/USD rallied through the 55 day ma at 0.7143 earlier in the week and broke the 2014-2016 downtrend at 0.7180. Daily closes above there for the week, let alone on 0.7190.7200 exposes territory to the upside in coming sessions."Dips lower would have to fall back below 0.7100 and preferably below 0.7000 to alleviate immediate upside pressure," explained Karen Jones, chief analyst at Commerzbank.
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