AUD/USD sellers just broke the market to the downside, with big help from another sticky consumer inflation update from the U.S.
Is this a fresh short opportunity or a long pullback in the works?
AUD/USD: 1-Hour
AUD/USD 1-Hour Chart by TradingView
On the one hour chart above, we can see a steady grind higher in the pair (mainly off of USD weakness) through the month of October, but with big help from another sticky consumer inflation update from the U.S., sellers quickly took back control of the pair.
The question for AUD/USD traders now is whether or not this is a return to bearish behavior, or if this drop is a buying opportunity for the bulls?
As always, the fundamentals dictate sentiment (most of the time), and we still have a few fundamental catalysts ahead before that question can be answered.
First up is the economic data from China in the upcoming Friday Asia trading session . If you don’t know, China is Australia’s biggest trading partner, and economic updates from China have tended to influence Aussie price sentiment in the past.
So, the latest inflation and trade data coming is likely to spark volatility in AUD, as well as likely create a stir in broad risk sentiment if the numbers come out way off from expectations.
Next up is the preliminary U.S. consumer sentiment updates (the University of Michigan survey), which tends to have an influence on both the U.S. and broad risk sentiment. The perception of the U.S. consumer tends to shape the U.S.’ economic outlook in traders’ minds, so this will likely have some influence on AUD/USD as well.
Current expectations are for China’s inflation rates to tick higher (0.4% m/m vs. 0.3% m/m previous) and the balance of trade ($72.1B forecast vs. $68.36B previous) metrics to improve. And over in the U.S., expectations for the consumer sentiment update are for the index to tick lower from 68.1 to 68.0.
If that plays out (or if traders begin to price in those expectations before hand), then the current intraday down move may run out of sellers and/or potentially draw in some profit takers.
Or in other words, IF support forms, then a short-term bounce back to the broken area of interest (minor resistance-turned-support around 0.6385) up to the broken rising trendline (area around 0.6400) is a possibility within a session or two given the daily average true range of around 80 pips.
For the bears, further downside from current levels is a possibility, but lows odds of success given the strong move already seen. A better setup to watch out for is if the pair does bounce, be on the look out for bearish reversal patterns around that technical confluence of broken rising ‘lows” trendline, moving averages and resistance-turned-broken-support.
If that scenario happens, along with better-than-expected U.S. consumer sentiment data and/or weaker-than-expected China data, the odds seem pretty good that that area will draw in more sellers than buyers. If so, that could lead to a swing move back to the downside, where the next area of support to watch is the previous swing low around the 0.6285 handle.
What do you think? Are there bearish or bullish moves ahead for AUD/USD? Leave a comment below!
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