FxWirePro: Aussie upbeat trade balance may not cushion AUD/USD's slumps - long term downtrend may resume upon shooting star

Australia reported a trade gap of AU$ 2.94 billion in January of 2016, a decrease of 17% from a downwardly revised AU$ 3.52 billion deficit in a month earlier and better than market expectations. Exports rose 1.0% to AU$ 25.55 billion while imports dropped by 1.0% to AU$ 28.49 billion.

In January 2016, imports fell 1.1%, a fall of $320mn. The Australian dollar had declined in the month, depreciating 3.2% against the US dollar and fell 2.3% on a TWI basis, putting upward pressure on the AU$  value of exports and imports.

Imports declined throughout each of the broad categories. Meanwhile, exports rose just 1.1% in the month, up $226 million.

The categories that contributed positively to exports were coal, fuels and gold. Against that, metal ores, including iron ore, fell $97mn, with a weaker result for 'other' ores.

AUD/USD is still stuck in its 0.7000/0.7421 range, mirroring the lack of direction in front-end AU-US rate spreads. We think the spread could narrow from both sides over the next 3m, pushing AUD/USD lower. Our official forecast calls for two more cuts from the RBA in H1 2016 though there is a higher risk now that those cuts are delayed.

Australia's terms of trade are narrowing but we think that it should solely drive AUD/USD higher and are watching for a break of major resistance (0.7421) for the current short term uptrend.

Technical glimpse:

Close watch on AUD/USD's attempts to break minor resistance at 0.7333 that may take expose the pair to major resistance at 0.7421 levels, but we think if it doesn't manage to hold onto 0.7333 and drop below supports at 0.7212 on a closing basis which would likely to create more bearish potential again in the days to come.

Stochastic and RSI remained in the oversold zones and noising with indecision but what we could perceive is that buying momentum is reduced and anytime selling signal may burst out.

The current prices have jumped above 21DMA and 7DMA, but no clear confirmation of trend reversal yet, so we can't afford to jump into the conclusion and get bull trapped.

As stated above, we reiterate it has remained in the range (0.7421-0.7000) and we wait quietly to observe if it breaches convincingly the upper bracket.