- The AUD/USD has had a relatively quiet trading session on Wednesday, as we are hanging about the 0.6550 level.
- At this point, we are a little stretched, so would not be surprised to see a little bit of a recovery.
- However, we have the Consumer Price Index number coming out on Thursday, which will be widely followed to give us a bit of a “heads up” as to what the Federal Reserve is going to do.
For what it is worth, the Producers Price Index came out on Wednesday, and it had a reading of 0.4% month over month, instead of the expected 0.2%. If the CPI numbers follow the PPI numbers in the same type of surprise, we will almost certainly see the US dollar strengthened quite drastically. However, if the number misses just a bit, it could be the catalyst for short-term rally. That short-term rally will almost certainly get squashed though, because unless it is an absolute collapse in the reading, the Federal Reserve will still have to deal with difficult inflation.
AUD/USD Likely to Remain in a “Fade the Rally” Situation
On that bounce, the 0.64 level would be a very interesting place to start shorting again, as it is the beginning of the previous consolidation area that I have circled on the chart. That area runs all the way to the 0.6550 level, so there’s a good chance that we would end up seeing quite a bit of selling pressure in the general vicinity. Furthermore, it would give the opportunity to pick up “cheap US dollars” and follow the overall trend.
It is not until the Federal Reserve steps away from its monetary tightening cycle that the Aussie has any real shot at going higher. Remember, the Reserve Bank of Australia has recently just shocked the market by raising only 25 basis points instead of the expected 50 basis points. The Australians also must worry about a housing market bubble popping, so that makes their job even more difficult. It’s very likely at this point that this pair will continue to be a “fade the rally” type of situation, with a 0.67 level above offering a bit of a ceiling, as it was such a major level going back multiple years. Furthermore, the 50-Day EMA has broken through that level and should now offer quite a bit of dynamic resistance as well.
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