Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6865.
Add a stop-loss at 0.7000.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7000.
Add a stop-loss at 0.6865.
The AUD/USD pair remained in a tight range on Thursday as traders reacted to the latest Fed minutes and the escalating crisis in the Middle East. It was trading at 0.6930, where it has been in the past few days.
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FOMC Minutes and Escalating Middle East Tensions
The AUD/USD pair remained inside a narrow range as the crisis in the Middle East resumed, with President Donald Trump declaring the ceasefire over.
The US launched more attacks against Iranian targets overnight, with CENTCOM citing Iran’s decision to shoot ships crossing the Strait of Hormuz. Iran responded by launching strikes against key US targets in the region.
As a result, crude oil and natural gas prices resumed their uptrend, with Brent hitting $80. The West Texas Intermediate (WTI) jumped to $75, raising odds that inflation will continue rising in the coming weeks.
The crisis escalated after the Federal Reserve published minutes of the last meeting. These minutes revealed that the FOMC is divided on the path of monetary policy in the near term. Some Fed officials believe that the bank should hike rates later this year as inflation has remained above the 2% target for years.
Other officials, however, were more open-minded and believe that the bank should consider cutting interest rates if inflation starts going down. Market participants are still pricing in a rate hike later this year.
The AUD/USD pair will react to the upcoming US macro data. Economists expect the upcoming report to show that the US existing home sales rose to a seasonally adjusted level of 4.19 million in June from the previous 4.17 million.
The US will also release the latest initial and continuing jobless claims report, while Lorie Logan and John Williams will talk.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has moved sideways in the past few days. It was trading at 0.6927, a few points below the upper side of the descending channel. The pair has remained below the 50-day Exponential Moving Average (EMA).
It has also formed a bearish flag pattern, which normally leads to more downside over time. Therefore, the forecast is bearish as long as it remains below the upper side of the descending channel. The next target to watch will be at 0.6865. A move above the upper side of the descending channel will invalidate the bearish outlook.