Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.7100.
- Add a stop-loss at 0.7260.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.7220 and a take-profit at 0.7300.
- Add a stop-loss at 0.7150.
The AUD/USD pair moved sideways on Wednesday as investors reflected on the testimony by Federal Reserve’s Jerome Powell. The pair was also little changed ahead of the important consumer price index (CPI) data from the United States. It is trading at 0.7190, which is a few points above this week’s low at 0.7150.
US Inflation Data
The AUD/USD was little changed on Tuesday after Australia published the latest retail sales and trade numbers. Data by the Australian Bureau of Statistics showed that the country’s retail sales continued doing well in November as most people did their Christmas shopping. In total, retail sales rose by 7.3% in November after they rose by 4.9% in October.
Further data by the agency revealed that Australia’s exports and imports did well in the same month. Exports rose by 2% after they dropped by 3% in the previous month. Imports, on the other hand, rose by 6% after falling by 2%. As a result, the country’s trade surplus narrowed slightly to about A$9.42 billion in November.
In all, while the Australian economy is doing well, the biggest risk is that the country is seeing a rising number of Covid-19 cases. This surge has seen more states like Victoria announce measures to curtail the spread, especially among the unvaccinated.
Looking ahead, the biggest catalyst for the AUD/USD pair will be the latest American consumer price index (CPI) data that will come out in the afternoon session. Economists polled by Reuters expect that the country’s inflation jumped sharply in December as Christmas demand coincided with the supply chain challenges.
Precisely, analysts expect that the headline CPI rose to 7% in December while the core CPI rose to 5.4%. These numbers will come a day after the Federal Reserve chair hinted that the bank will take a more aggressive tone to deal with inflation.
AUD/USD Forecast
The four-hour chart shows that the pair found a strong resistance level at 0.7276, which was the highest level in December. This price was also along the 50% Fibonacci retracement level. Now, the pair has formed a small bearish pennant pattern that is shown in blue. It also moved to the 25-day moving average while the Stochastic Oscillator has moved close to the overbought level.
Therefore, the pair will likely break out lower after the latest US inflation data. If this happens, the next key support to watch will be at 0.7100.
