Bearish View
Sell the AUD/USD and add a take-profit at 0.7020.
Add a stop-loss at 0.7200.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7150 and a take-profit at 0.7250.
Add a stop-loss at 0.7100.
The AUD/USD pair has been wavering in the past few weeks ahead of the latest interest rate decision by the Federal Reserve. The pair is trading at 0.7120, which is slightly below last week’s high of 0.7187.
Fed Decision
The AUD/USD and most currency pairs with the US dollar have moved sideways in the past few days since investors are focusing on the Federal Open Market Committee (FOMC) meeting that will come out later today (Wednesday).
The decision comes at an important time for the American economy. Recent data shows that inflation has surged to a multi-decade high. While wages have also risen, the prices of most products that Americans use every day have risen more.
For example, the price of gasoline has jumped from less than $1.5 when the year started to more than $2. Also, many families have seen the prices of their rent almost double since the pandemic started.
Therefore, based on a previous statement by Jerome Powell and other Fed officials, there is a likelihood that the bank will embrace a more hawkish tone. In recent testimony to Congress, Powell said for the first time that the Fed will stop referring to inflation as transitory. It expects that prices will keep rising in the coming months before things start normalizing.
As such, the bank will likely double the amount of its tapering. This means that it will reduce the size of asset purchases by about $30 billion. If this happens, it will likely end the asset purchases by March next year. The bank will also provide signals that it will start hiking interest rates in the coming year.
The AUD/USD will also react to the latest US retail sales numbers. The headline retail sales are expected to have risen by 0.8% in November after rising by 1.7% in October.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair formed a small double-top pattern at 0.7181 recently. This pattern is usually a bearish sign. The pair also moved slightly below the 23.6% Fibonacci retracement level. Another bearish thing is that the price has moved below the 25-day and 50-day moving averages. The Stochastic oscillator has moved to the oversold level.
Therefore, the pair will likely keep falling ahead and after the Fed decision. This could see the pair drop to the key support at 0.7020.
