Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7100.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.6900.
The AUD/USD pair rose and retested the important resistance level of 0.700 as the US dollar softened following the latest inflation data. It has rebounded by 2% from its lowest level this month as traders readjusted their Federal Reserve outlook.
US Inflation Falls, But Iran War Poses a Challenge
The AUD/USD pair held steady as investors sold the US dollar after this week’s consumer inflation report. The US Dollar Index (DXY) tumbled to 100.32, down modestly from the June high of 101.80.
Traders have moved from the US dollar after macro data released this week showed that consumer inflation softened in June. On Tuesday, a report showed that the headline and core consumer inflation dropped from 4.2% to 3.5%.
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Another report on Wednesday showed that the Producer Price Index (PPI) dropped 0.3% on a MoM basis. It dropped from 6.0% to 5.5% on an annual basis, missing the estimated 6.2%.
These numbers mean that inflation was moving in the right direction until Donald Trump restarted his war against Iran recently. Since then, Brent and WTI crude oil benchmarks started rising, raising jitters that inflation will start rising again.
The AUD/USD pair also rose as Kevin Warsh was grilled in the Senate Banking Committee. Unlike other Fed officials, Warsh has insisted on not offering forward guidance. Instead, he has maintained the view that the Fed will do whatever it takes to bring inflation down.
There are no scheduled macro data from Australia today. Instead, traders will react to the upcoming US retail sales numbers, which will provide more color on the state of the American consumer.
Recent data showed that consumer spending has been relatively strong despite the economic downturn. Economists expect the upcoming report to show that retail sales grew 0.2% in June.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair bottomed at 0.6865 in June and then bounced back to 0.7000. It remains between the 23.6% and 38.2% Fibonacci Retracement level. Also, it has retested the 50-day moving average.
Notably, the pair has formed a bearish flag pattern, which often leads to a continuation. The Average Directional Index (ADX) has dropped from 41 to 30, a sign that the ongoing recovery has lost momentum.
Therefore, the pair will likely reverse in the near term. If this happens, the next key target level to watch will be at 0.6900.
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