Bullish view
- Set a buy-stop at 0.6735 and a take-profit at 0.6885.
- Add a stop-loss at 0.6650.
- Timeline: 1-3 days.
Bearish view
- Set a sell-stop at 0.6700 and a take-profit at 0.6600.
- Add a stop-loss at 0.6800.
The AUD/USD exchange rate retreated in the past four straight days as traders embraced a risk-on sentiment in the market. The pair retreated to the psychologically important level of 0.6700, 2.20% below its highest point in December.
Fed rate cut concerns
The AUD/USD pair retreated as traders remained concerned about the Federal Reserve’s dovish tone and whether it will still slash rates as soon as in March. There are concerns that the ongoing crisis in the Middle East will have an impact on inflation.
The price of crude oil has remained quite steady, with Brent trading at $78 and West Texas Intermediate hovering at $73. Further, there are signs that shipping costs are rising, with the closely watched Drewry World Container Index rising to $1,661.
In a statement on Wednesday, Thomas Barkin, the head of Richmond Fed, warned that the Fed could still hike rates if inflation remains stubbornly high. He also did not rule out the possibility of a rate cut in March if inflation continues its downward trend.
His statement came on the day that the ISM published the latest US manufacturing PMI report. Data showed that the PMI rose slightly to 47.8 in December, better than the median estimate of 47.1. A PMI figure of less than 50 is a sign that a sector is contracting.
Another report by the Bureau of Labor Statistics (BLS) revealed that the number of job openings in the US dropped to a two-year low of 8.7 million. That report came ahead of the upcoming ADP estimate of private payrolls and the official Non-Farm Payrolls (NFP) data scheduled for Friday.
Meanwhile, Fed minutes published on Wednesday showed that policymakers agreed to maintain restrictive policies for some time. They also agreed to start talking about cuts in 2024.
AUD/USD technical analysis
The AUD/USD pair has been in a strong sell-off in the past few days. This retreat started as the pair approached the key resistance level at 0.6890, where it formed a double-top pattern in June and July last year. The pair has been forming a cup and handle pattern, a popular continuation sign.
It has remained above the 50-day Arnaud Legoux Moving Average (ALMA). Also, it has retreated below the first support of the pitchfork tool while the Chaikin oscillator has dropped below the neutral point.
Therefore, the pair will likely remain under pressure this week and then resume the uptrend in the coming days. As such, it could retest the support at 0.6650 and then bounce back to last week’s high of 0.6885.
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