Bullish View
- Buy the AUD/USD pair and set a take-profit at 0.6360.
- Add a stop-loss at 0.6150.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 0.6245 and a take-profit at 0.6150.
- Add a stop-loss at 0.6350.
The AUD/USD exchange rate tilted upwards overnight after Donald Trump was inaugurated as the US president and delayed his tariffs. The pair rose to a high of 0.6286, its highest swing since January 6, and up by 2.45% from its lowest level this month.
Its uptrend happened after Trump called for a study on tariffs, continuing his moderate shift towards China. He also reinstated TikTok, an app that went dark on Sunday, and is said to be considering a trip to Beijing early during his administration.
He hopes to create a deal with Beijing that will help the country lower the substantial trade deficit. Trump will also want China’s help on ending the war between Ukraine and Russia.
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An escalating trade war between the US and China would impact the Australian economy since China is its biggest trading partner. This explains why the prices of most items that China buys from Australia, like coal and iron ore jumped after Trump’s first speech.
The AUD/USD pair also rose as the US dollar index (DXY) and bond yields dropped. The DXY index dropped by over 1%, while the 10-year yield fell to 4.54%.
There will be no economic data from the United States and Australia on Tuesday. Therefore, traders will focus on any potential statement from Trump.
AUD/USD technical analysis
The four-hour chart shows that the AUD/USD pair bottomed at 0.6133 on January 13 and has now rebounded to 0.6250.
It has now formed an inverse head-and-shoulders chart pattern, a highly popular bullish continuation sign. This pattern comprises a head at 0.6133 and two shoulders at 0.6180.
The inverse H&S happens during a downtrend and often leads to a recovery, especially when it moves above the neckline, which is currently at 0.6285.
The AUD/USD pair has moved slightly above the 50-period moving average, while the MACD indicator has jumped above it. Therefore, the path of least resistance is upward. The next level to watch is 0.6360, the lowest swing on August 5.
A break above that level will point to more gains, potentially to 0.6400. However, a move to that price may be a sign of a break and retest, which may trigger a resumption of the previous bearish trend.
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