The Australian dollar initially dropped 30 pips against the U.S. greenback and tentatively breached below the 200-day SMA on weaker Chinese data for the month of April. The readings for both industrial production and investment data may hurt risk appetite to start the trading week. Chinese industrial production increased 6.0% year-over-year, but missed to the analyst consensus of 6.5% and the prior March reading of 6.8%. Fixed-asset investment in urban areas for the period between January and April printed at 10.5%, much lower than the analysts’ target of 11.0%.
If we continue to see growth trend momentum weaken, we may see a return to commodity weakness and the Australian dollar may give up its recent gains.
The Australian dollar daily chart displays that the bullish recovery was firmly in place after making a key low at .6826 on January 15th. The bearish move returned once price broke below the 50-day SMA and uptrend line shown in green. Bearish momentum has now formed a tentative bullish ABCCD pattern, but this rebound may be only temporary. If the rebound stalls at .7320, we could see price target a test of the .7200 area. Further weakness may target the .7000-.7050 zone.
The trade: Buy AUD/USD at .7350, with a stop loss at .7250 and take profit at 7650. The risk/reward ratio is 1:3