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Forex Market: AUD/USD trading forecast for October 26th

Friday’s trade saw AUD/USD within the range of 0.7194-0.7299. The pair closed at 0.7215, edging up 0.10% on a daily basis and following two consecutive trading days of losses. The daily high has been the highest level since October 20th, when the cross registered a high of 0.7300. In weekly terms, AUD/USD lost 0.63% last week, while extending the loss from the week ended on October 18th. It has been the smallest weekly rate of decline since the week ended on June 7th, when the pair fell 0.14%.

On Monday (October 26th) AUD/USD trading may be influenced by the following macroeconomic releases listed below.

Fundamentals

United States

New Home Sales

Sales of new single-family homes probably fell to the seasonally adjusted annual rate of 550 000 in September, according to market expectations, from 552 000 reported in August. The latter has been the highest level of sales since February 2008, when a figure of 575 000 was reported. Sales in the Northeast went up 24.1% in August, those in the South were up 7.4%, while sales in the West increased 5.4%. On the other hand, new home sales in the Midwest were 9.1% lower in August compared to a month ago.

The median sales price of new houses sold was USD 292 700 in August, while the average sales price was USD 353 400. At the end of the month, the seasonally adjusted estimate of new houses for sale was 216 000, which represents a supply of 4.7 months at the current sales rate, according to the report by the US Census Bureau.

This report has a significant influence on the Foreign Exchange market, because increasing new home sales can lead to a rise in consumption, for example. The new home sales index is also an excellent indicator of any economic downturns or upturns due to the sensitivity of consumers income. When, for instance, new home sales drop over several months, this usually is a precursor to an economic depression.

In case a lower-than-expected level of sales is reported, this would have a strong bullish impact on the US dollar. The Census Bureau is to report the official figure at 14:00 GMT.

Correlation with other Majors

Taking into account the week ended on October 25th 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 GBP/USD (0.6488, or strong)
AUD/USD to EUR/USD (0.6164, or strong)
AUD/USD to NZD/USD (0.2470, or weak)
AUD/USD to USD/JPY (-0.6471, or strong)
AUD/USD to USD/CHF (-0.7140, or strong)
AUD/USD to USD/CAD (-0.8987, or very strong)

1. During the examined period AUD/USD moved strongly in one and the same direction with GBP/USD and EUR/USD, while moving strongly in the opposite direction compared to USD/JPY and USD/CHF.

2. AUD/USD moved almost equally in the opposite direction compared to USD/CAD during the past week.

3. The correlation between AUD/USD and NZD/USD was insignificant during the period in question.

Bond Yield Spread

The yield on Australia’s 2-year government bonds went as high as 1.814% on October 23rd, after which it slid to 1.798% at the close to lose 1.3 basis points (0.013 percentage point) compared to October 22nd. It has been the second straight trading day of decrease.

The yield on US 2-year government bonds climbed as high as 0.645% on October 23rd, or the highest level since October 9th (0.657%), after which it closed at the exact same level to add 4 basis points (0.04 percentage point) compared to October 22nd. It has been the first increase in the past three trading days.

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, shrank to 1.153% on October 23rd from 1.206% during the prior day. The October 23rd yield spread has been the lowest one since September 15th, when the difference was 1.142%.

Meanwhile, the yield on Australia’s 10-year government bonds soared as high as 2.687% on October 23rd, or the highest level since October 20th (2.702%), after which it slid to 2.668% at the close to add 5 basis points (0.05 percentage point) compared to October 22nd. It has been the first increase in the past three trading days.

The yield on US 10-year government bonds climbed as high as 2.099% on October 23rd, or the highest level since October 9th (2.138%), after which it slipped to 2.087% at the close to add 5.9 basis points (0.059 percentage point) compared to October 22nd. It has been the first gain in the past three trading days.

The spread between 10-year Australian and 10-year US bond yields narrowed to 0.581% on October 23rd from 0.590% during the prior day. The October 23rd yield difference has been the lowest one since October 6th, when the spread was 0.581%.

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 – 0.7236
R1 – 0.7278
R2 – 0.7341
R3 – 0.7383

S1 – 0.7173
S2 – 0.7131
S3 – 0.7068

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

Central Pivot Point – 0.7235
R1 – 0.7290
R2 – 0.7365
R3 – 0.7420

S1 – 0.7160
S2 – 0.7105
S3 – 0.7030

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