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 0.6865.
Add a stop-loss at 0.700.
The AUD/USD pair dropped as the US dollar bounced back, as geopolitical tensions in the US and Iran rose. It dropped to 0.6917 as traders focused on the upcoming US consumer inflation report, which will help to determine the next actions of the Federal Reserve.
US Consumer Inflation Data as Geopolitical Tensions Jump
The AUD/USD dropped as traders waited for the latest US consumer inflation report. Economists expect the data to show that US inflation eased a bit last month as tensions between the US and Iran eased, pushing crude oil and gasoline prices lower.
The average estimate among analysts is that the headline Consumer Price Index (CPI) dropped from 4.2% in May to 3.8% in June. Core inflation, on the other hand, is expected to remain unchanged at 2.9%.
The decline in inflation, however, is expected to be brief as energy prices have bounced back. Brent and West Texas Intermediate soared by over 10% as investors reflected to the escalating tensions between the US and Iran.
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The US has reinstated its blockade, with Trump vowing to block Iranian ships crossing the Strait of Hormuz. He also said that the US will start escorting ships through the strait for a fee.
A return to war will push inflation higher in the coming months. This will happen at a time when Fed officials are debating whether they should hike or cut interest rates this year. In a statement on Monday, Christopher Waller hinted that the bank may consider hiking rates as core inflation has remained at an elevated level for longer than expected.
The AUD/USD pair will react to statements from several Fed officials like Austan Goolsbee, Lisa Cook, and Michele Bowman. These statements will come a day before Chair Kevin Warsh is expected to deliver a statement in Congress.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has dropped sharply in the past few months as the US dollar strength has continued. This retreat faded recently, with the pair forming an ascending channel. This channel was part of the formation of the bearish flag pattern, a common continuation sign.
The pair has moved below the 38.2% Fibonacci Retracement level and the 50-day moving average. Therefore, the path of the least resistance is downwards, with the initial target being last month’s low of 0.6865.
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