Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6872.
- Add a stop-loss at 0.7025.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6990 and a take-profit at 0.7050.
- Add a stop-loss at 0.6900.
The AUD/USD exchange rate continued its bullish trend as the US dollar sell-off gained steam. Last week, the pair rose to a multi-month high of 0.7064. It has risen by over 12.5% from its lowest level since October.
Markets are contradicting the Fed
The performance of the Australian to US dollar pair seems to suggest that investors are contradicting the recent statements by Fed officials. In separate statements last week, several Fed officials, including vice chair, Lael Brainard insisted that the bank will stay the course on rate hikes. As such, they insisted that the bank will continue hiking interest rates and maintain them higher for longer.
But the market is not buying this, with the outlook of the economy worsening. For example, risk assets like cryptocurrencies have been in a strong bullish trend in the past few weeks. Bitcoin rose to above $23,000 during the weekend while American indices like the Dow Jones and Nasdaq 100 index have risen. The Australian ASX 200 index has also continued rising.
There will be no major economic data from the US and Australia on Monday. Later this week, however, the AUD/USD price will react to the latest Australian inflation data.
Economists polled by Reuters expect the data to show that the headline CPI dropped from 1.8% in Q3 to 1.5% in Q4. On a year-on-year basis, inflation is expected to have risen to 7.5%. Core inflation, which excludes the volatile food and energy prices, is expected to have dropped from 7.2% to 7.1%.
The other thing to watch this week will be big-tech earnings. Companies like Microsoft, Tesla, and Boeing will publish their results. These earnings come at a time when many in corporate America are warning about a mild recession. Last week, Microsoft decided to lay off over 10,000 people.
AUD/USD forecast
The Australian dollar has been in a bullish trend in the past few months. In December, it made a bearish breakout below the lower side of the ascending channel and then quickly made a bullish comeback. Recently, it made a false breakout below the lower side of the red ascending channel. It is now attempting to retest the lower side of this channel.
This pattern could be part of a break and retest pattern. Therefore, another bearish breakout cannot be ruled out. If it happens, it will likely retest last week’s low at 0.6872.
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