Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7000.
Add a stop-loss at 0.7250.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7250.
Add a stop-loss at 0.7000.
The AUD/USD pair remained under pressure on Monday as geopolitical tensions rose and as traders reacted to last week’s Australia’s jobs report. It was trading at 0.7128 as focus shifts to the closely-watched inflation report.
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Australia and US Consumer Inflation Report Data Ahead
The AUD/USD pair pulled back as traders tweaked their Reserve Bank of Australia (RBA) expectations after last week’s jobs data. This report showed that the economy shed jobs as the unemployment rate rose and the participation rate dropped. That is a sign that the companies are struggling as the Iran crisis remains.
The next important data to watch will be the Australian inflation report, which will come out on Wednesday. Economists believe that the country’s inflation continued to rise, moving further away from Australia’s central bank's 3%-4 % target. The most recent data showed that the headline CPI rose 4.1% in the first quarter, while the monthly CPI rose 4.6% in April.
Unlike in past meetings, the RBA is now contending with a stagflation risk, characterized by high inflation and a weak economy. As such, it may decide to maintain the status quo as it observes the economic progress.
The AUD/USD pair also pulled back after Christopher Waller, one of the most dovish Federal Reserve officials, changed his mind. He now expects that the bank will not only leave rates unchanged this year, but hike rates by 25 basis points if inflation remains elevated.
The most recent data showed that the headline consumer and producer inflation rose 3.8% and 6% in April, respectively. Inflation will likely keep rising now that gasoline prices are in an uptrend. The US will publish the latest Personal Consumption Expenditure (PCE) report on Thursday this week.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has pulled back in the past few days and is now trapped between the 50-day and 25-day moving averages.
Chart patterns are also sending some mixed signals. For example, it has formed an inverted head-and-shoulders pattern, which normally leads to a rebound. On the other hand, it is showing signs that it is forming a small bearish pennant pattern.
Therefore, the next direction will be determined on whether it moves below the support at 0.7080. A move below that level will point to more downside, potentially to 0.7000. The alternative scenario is where it resumes the uptrend, which will confirm the inverted H&S pattern.