Bearish signal
- Sell the AUD/USD and set a take-profit at 0.7692 (last week’s low).
- Add a stop-loss at 0.7816.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.7816 and a take-profit at 0.7883 (R1 of standard pivot point).
- Add a stop-loss at 0.7750.
The AUD/USD retreated slightly as traders reacted to the falling iron ore prices and the mild economic data from China. The pair is trading at 0.7762, which is slightly below Friday’s high of 0.7790.
Iron ore prices slide continues
Iron ore is one of the biggest Australia’s exports. As such, the Australian dollar tends to do well when iron ore prices rise. Indeed, the currency rose to 0.7890 early last week as the prices surged to an all-time high. However, these gains were short-lived as regulators in China warned about price gauging, collusion, and spreading false market information.
The prices also declined as demand from China eased slightly. This pushed the prices below $210 per tonne, which was lower than the weekly high of $226. Still, some analysts remain bullish on the commodity as global demand rises. In a note, analysts at Fitch Solutions and OCBC said that they expect the price to keep rising because of demand from China.
The AUD/USD is also reacting to the mixed data released by China. According to the country’s statistics office, retail sales rose by 17.7% year-on-year in April, down from the previous 34.2%. Year-to-date, sales have risen by 29.61%. Additionally, fixed asset investments increased by 19.9%, better than the median estimate of 19.0% while industrial production rose by 9.8% in April.
The AUD/USD also declined because of the relatively strong US dollar. The dollar index rose slightly as the market continues betting that the Federal Reserve will start a tightening phase. Furthermore, the US labour market is tightening while consumer prices have risen to the highest level in recent years.
AUD/USD forecast
The four-hour chart shows that the AUD/USD pair is forming a head and shoulders pattern whose head is at last week’s high of 0.7790. The pair seems to be forming the right shoulder section. It has also at the same point as the 28-day and 14-day moving average and between the rectangle channel. The pair has also moved slightly below the standard pivot point.
Therefore, in the near term, the AUD/USD could rebound as it continues to form the right shoulder and then retreat. If this happens, the price could decline below the important support at 0.7675. However, a move above the important resistance at 0.7816 will invalidate this trend.
