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Strong Aussie Gains Could be Poised for a Correction

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Strong Aussie Gains Could be Poised for a Correction

With the US government closure and potential debt default now in the rear view mirror, investors will begin to focus on economic data which will hit the tapes this week. The backlog of US economic data points which include September’s employment report will help investors paint an economic picture which will give central bankers a better view of when they will begin the tapering process.

The US government will begin reporting data with the highlight being the Tuesday release of September’s non-farm payroll report and unemployment release. On Wednesday the BLS will release producer price data and on Thursday they will report consumer prices index data.

HSBC flash China PMI reading for October is due out Thursday, and is expected at 50.4 vs. 51.2 final in September. The Chinese reported a stronger than expected GDP report in the middle of last week. Recent data suggest sustained growth ahead for China. Consensus readings for GDP growth over the next few quarters are estimated to be around 7.5%.

The growth in Chinese has been a benefit to the Australian dollar which has hit its highest levels since June 2013. A close above resistance near 0.9670 would lead to a test of target resistance near 0.9800. Support is seen near the 10-day moving average at 0.9537.

Momentum on the currency pair is positive with the MACD (moving average convergence divergence) index printing in positive territory after generating a buy signal last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buys signal. The RSI (relative strength index) is flashing a warning sign printing at 75, which is above the trigger for an overbought condition and could foreshadow a correction in the currency pair.

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