Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6590.
- Add a stop-loss at 0.6670.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6635 and a take-profit at 0.6725.
- Add a stop-loss at 0.6575.
The AUD/USD pair surged to its highest point since January 15th amid a broader US dollar sell-off after the nonfarm payrolls (NFP) report. It jumped to a high of 0.6666 on Friday and then pulled back to 0.6625.
US inflation report ahead
The AUD/USD pair rebounded as the US dollar retreated. The dollar index dropped from the year-to-date high of $104.5 to $102.7. It has dropped against most currencies, including sterling, euro, and the Canadian dollar.
The dollar’s sell-off intensified after the latest congressional testimony by Jerome Powell. In it, his view was that the US still needed higher interest rates since inflation is still stubbornly high.
However, he said that he was confident that rate cuts will come later this year. In this case, analysts expect that the Fed will deliver three cuts this year starting from its June meeting.
The Fed is balancing between the falling inflation and the fact that the economy is slowing and that inflation is taking longer to hit its 2% target. The US has published weak consumer confidence, durable goods orders, and factory orders.
Looking ahead, there will be no important economic data from Australia this week. The most notable ones will be the country’s electronic retail sales and building approvals set for Tuesday.
Therefore, the AUD/USD pair will react to US economic reports. The Bureau of Labor Statistics (BLS) will publish the latest inflation data on Tuesday.
Economists polled by Reuters expect these numbers to show that the headline CPI rose from 0.3% in January to 0.4% in February. This, in turn, will translate to a year-on-year increase of 3.1%. Core inflation is expected to come at 0.3% and 3.7%.
The other important report will be the latest US retail sales data scheduled for Thursday this week. These reports will help the Fed when it holds its meeting later this month.
AUD/USD technical analysis
The AUD to USD pair made a strong bullish breakout last week. As it jumped, it moved above the upper side of the black symmetrical triangle pattern. It also moved, albeit slightly, above the key resistance points at 0.6594 and 0.6625, the highest points on Feb 22nd and January 31st, respectively.
The pair has moved above the 50-period moving average and formed a standard doji pattern. Therefore, it will likely retreat as bears target the key support at 0.6595. A break below that level will signal that bears have prevailed and lead to more downside.
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