Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6950.
Add a stop-loss at 0.7200.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7200
Add a stop-loss at 0.6950
The AUD/USD exchange rate was highly volatile on Monday morning as market participants reacted to the ongoing developments in the Middle East, where the war between Iran and the US and Iran escalated. The pair was trading at 0.7050, down slightly from the year-to-date high of 0.7140.
Iran Tensions Lead to Heightened Volatility
The AUD/USD exchange rate pulled back as traders reacted to the rising geopolitical tensions in the Middle East, where the US and Israel attacked and killed Supreme Leader Ayatollah Ali Khamenei. They also killed key military leaders in the country.
In its response, Iran shut down the Strait of Hormuz, while Lloyds of London insurers canceled insurance policies for ships moving through the Strait. As a result, crude oil prices soared, even as OPEC+ announced a surge in supply in its meeting on Sunday.
Brent and West Texas Intermediate (WTI) rose to over $85 a barrel, a move that will likely lead to higher inflation in the United States and other countries.
Inflation concerns have lingered in the past few months. A report released on Friday showed that the headline and core Producer Price Inflation (PPI) moved further away from the Federal Reserve’s 2% target in January.
Looking ahead, the main catalyst for the AUD/USD pair will be the upcoming US ISM manufacturing PMI report.
Economists expect the upcoming data to show that the PMI eased slightly from 52.6 in January to 52.3 in February. The S&P Global PMI figure is expected to come in at 52.3. A PMO figure of 50 and above is a sign that a sector continued to expand.
The AUD/USD pair will also react to an upcoming speech by Michelle Bullock, the head of the Reserve Bank of Australia (RBA).
She is expected to maintain a highly hawkish tone, especially after the recent strong Australian jobs and inflation data. The most recent numbers showed that the headline and core inflation continued rising in January.
AUD/USD Technical Analysis
The daily timeframe chart shows that the AUD/USD exchange rate retreated on Monday as volatility in the forex market escalated. This retreat happened as the pair formed a double-top pattern at 0.7137 and a neckline at the psychological level at 0.700.
The pair has remained above the Supertrend indicator. It also remains above the 100-day Exponential Moving Average (EMA). Also, the two lines of the Percentage Price Oscillator (PPO) have made a bearish crossover.
Therefore, AUD/USD pair will likely be highly volatile in the coming days as the crisis in the Middle East escalates. The key support and resistance levels to watch will be 0.7000 and 0.7200.