Bullish Breakout – Tuesday Technicals

The forecast for AUD/USD has turned somewhat positive, both from a macro and technical perspective. Recent gains in copper prices, optimism about China's continued recovery and the Reserve Bank of Australia's reintroduction of tightening policy (although another interest rate hike this year seems unlikely) have helped limit the Aussie's losses. In the United States, weak economic data helped delay interest rate cuts, although concerns about sticky inflation persisted ahead of U.S. consumer price index (CPI) data on Wednesday. We expect AUD/USD may break above 0.6650 to confirm our short-term bullish view on AUD/USD.

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AUD/USD Forecast: Technical Levels and Factors to Watch

AUD/USD Forecast

Source: TradingView.com

From a technical perspective, the Australian dollar looks constructive. Although it has yet to break out, AUD/USD appears to be on the verge of setting higher highs, the first this year above the March 2024 high of 0.6667.

More specifically, the key area of ​​resistance to watch is the 0.6650 to 0.6667 area, which, as you can see on the chart, rates have struggled to break above multiple times this year. But recent price action seems bullish, suggesting a potential breakout is possible.

AUD/USD has recently held support above the 0.6565 to 0.6585 support area, which has acted as resistance in the past, thus holding above the 21-day exponential moving average.

AUD/USD hit fresh intraday highs as bulls retreated around this area following the release of US Producer Price Index (PPI) data.

Therefore, during the Asian session, we are likely to see a potential breakout ahead of Wednesday's CPI report. As long as the CPI doesn't sound the inflation alarm bells, a bullish breakout appears to be brewing.

If the Aussie breaks above the aforementioned resistance area, it could pave the way for an initial rise to 0.6750, followed by a move to the December high around 0.6870.

But before we go too far, for confirmation we do need to see a break above the 0.6650 to 0.6667 area as we have no clear bullish signal so far.

Dollar falls after PPI

AUD/USD rose on Tuesday ahead of Wednesday's release of the US Consumer Price Index. This comes after a gauge of producer inflation rose more than expected. But downward revisions to last month's data and a weakening in a key category included in the Fed's preferred inflation gauge, the core personal consumption expenditures price index, meant the market largely ignored the overall rise.

From a month-on-month perspective, both the overall producer price index (PPI) and the core producer price index (PPI) rose 0.5%, which was stronger than expected. The hotter data was mainly driven by the services sector, following a sharp 0.1% decline in March (originally +0.2%). The revision means that the year-on-year growth rate will be in line with expectations, rising from 2.1% to 2.2%, reaching the highest level since May last year. In addition, some categories used to calculate the core PCE index in the PPI report have been relaxed.

The mixed signals from the PPI report mean the CPI report will release more definitive inflation data on Wednesday.

Analysts expect CPI to slow in April for the first time in six months. If so, it would raise hopes that, after a string of unexpected increases in 2024, price pressures will start to ease again. The month-on-month growth is expected to be 0.4%. Core CPI, which excludes food and fuel, is expected to rise 0.3% from the previous quarter and 3.6% from the same period last year.

Investors are eagerly awaiting consumer inflation data to get a clearer picture of when and how much the Federal Reserve might adjust interest rates. This comes after Jerome Powell reiterated that despite little progress in inflation in the first quarter, he expects prices to gradually decline month by month.

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