Risk sentiment has continued to hold up this week, although we have also seen a stronger US Dollar ahead of today's Federal Reserve policy meeting. All of these factors can have a major impact upon the behaviour of this currency pair. This is putting the AUD/USD currency pair in focus, following its bullish breakout over one week ago above 0.7000, and we have seen this pair behaving quite respectfully of technical factors over the past few days. Let’s look at the two currencies first.
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AUD/USD Fundamental Analysis
The Australian Dollar has a cautiously bullish fundamental outlook after today’s inflation data strengthened the case for further RBA tightening. Annual headline inflation accelerated to 4.3% in September from 4.0%, while underlying trimmed-mean inflation rose to 3.6%, keeping price pressures above the RBA’s 2–3% target and supporting the currency’s interest rate appeal. Markets now see a November rate increase as increasingly likely, although weakening employment and household demand complicate the policy outlook, and a widely anticipated hike may offer limited additional upside. Today’s Federal Reserve decision is the next immediate catalyst for AUD/USD: hawkish US guidance could offset the Aussie’s domestic support, while a less restrictive signal would give its inflation-driven recovery more room to extend.
The US Dollar has a cautiously bullish fundamental outlook, supported by persistent inflation and the prospect of further Federal Reserve tightening, although subdued hiring limits the urgency for another increase. September’s annual CPI inflation accelerated to 3.7%, while payrolls rose by just 29,000, highlighting the Fed’s difficult balance between price stability and employment. The dollar is holding near a two-week high ahead of today’s Fed decision, with markets assigning roughly a 91% probability to unchanged rates and focusing instead on guidance about December. A clear signal that another hike remains likely would support the currency, whereas greater concern about growth or employment could lower Treasury yields and reverse some of its recent gains.
It looks like fundamentals are supporting a case for the rate of this currency pair to stay consistent and remain within a range, although perhaps the momentum is with the Aussie here as the slightly elevated inflation data earlier today was a surprise.
AUD/USD Technical Analysis
The price chart’s standout recent technical feature is the range between approximately 0.7000 and 0.7050, which emerged after the price passively broke down from an ascending price channel in the form of a linear regression analysis. However, it should be noticed that within this range, we have seen bullish price action, most notably by a series of higher lows.
The price action has also established a fresh higher support level at 0.7022.
It looks like the price is coiling up for a bullish breakout above 0.7050. As the Fed policy meeting today is a huge event, there is a strong likelihood that such a breakout will not happen until some data is released from that.
AUD/USD H1 Price Chart – Bullish Range
Support & Resistance Levels
My previous AUD/USD signal on 22nd October gave a profitable long trade from the bullish rejection of the support level which I had identified at 0.6998.
Risk 0.25%.
Trades may only be entered prior to 5pm Tokyo time Thursday.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 0.7043, 0.7079, or 0.7092.
Place the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the 1H1 time frame H1H1H1 time frame immediately upon the next touch of 0.7022, 0.6998, or 0.6964.
Put the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
Concerning the US Dollar, the Federal Reserve will be holding a policy meeting at 6pm London time.
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