Bearish View
- Sell the AUD/USD and set a take-profit at 0.7100.
- Add a stop-loss at 0.7250.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7200 and a take-profit at 0.7300.
- Add a stop-loss at 0.7100.
The AUD/USD pair crossed an important support level as investors embraced a risk-off approach ahead of the upcoming Australian consumer inflation data. The pair declined to a low of 0.7175, which was the lowest level since January 18th.
Risk-Off Sentiment
A risk-off sentiment has returned to the market as investors worry about weak corporate earnings and the possibility that most central banks will embrace a hawkish tone.
In the past few days, American and Australian equities have slumped. The same trend has happened in the cryptocurrency industry, where all cryptocurrencies have declined sharply in the past few weeks. Bitcoin is solidly below $40,000 while the total market cap of coins has dropped to about $1.8 trillion.
After two straight years of an expansive monetary policy, analysts now expect that the Fed and even the Reserve Bank of Australia (RBA) will start tightening this year. The Fed has warned that it could be forced to intervene more aggressively this year. It will do this by ending its quantitative easing policy and then raising rates at least three times this year.
Meanwhile, the performance of Australian bonds has also hinted that the Reserve Bank of Australia (RBA) will also start tightening this year. For example, yields of the 10-year government bond yield has jumped to 1.88%, which is the highest it has been since December last year.
The economic calendar will be a bit muted today so investors will continue to assess the risk situation. Markit will publish the latest manufacturing PMI data from the United States. Analysts expect the data to show that the two sectors did well in January even as the omicron challenges remained.
On Tuesday, the Australian Bureau of Statistics will then publish the latest consumer inflation data for the fourth quarter. Analysts expect the data will show that the headline CPI rose to 3.2% in q4.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD has been in an ascending channel that is shown in black. Now, the pair has managed to move below the lower side of this ascending channel. At the same time, it has dropped below the 38.2% Fibonacci retracement level.
It has also moved below the 25-day and 50-day moving averages while oscillators like the Relative Strength Index (RSI) and the MACD have moved lower. Therefore, the pair will likely keep falling this week as bears target the support at 0.7100.
