Fundamental Overview
The USD is weaker across the board following the soft US PPI report yesterday. The market pricing is now showing a total of 31 bps of easing by year end compared to 24 bps before the PPI. The focus remains on the US CPI report today.
A hot report will likely cause some trouble in the markets with the stock market looking as the most vulnerable right now.The best outcome would be a soft report given the overstretched moves in the markets caused by the repricing in rate cuts expectations.
That would likely reverse most of the recent trends and trigger a correction in Treasury yields and therefore in the US Dollar.
On the AUD side, the RBA softened further its stance at the last policy decision as it nears the first rate cut. The market is seeing a 67% chance of a 25 bps cut in February although the first fully priced in cut is seen in April.
The recent Australian Monthly CPI showed core inflation easing with the Trimmed Mean CPI Y/Y coming in at 3.2%. This has increased the expectations for a rate cut already at the February policy meeting. As a reminder, the RBA’s inflation target band is 2-3%.
AUDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that AUDUSD is bouncing from the 2020 lows as the US Dollar weakened following the tariffs news and the US PPI data. From a risk management perspective, the sellers will have a better risk to reward setup around the major trendline to position for further downside. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new highs.
AUDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, there’s not much else we can glean from this timeframe, so we need to zoom in to see some more details.
AUDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have an important resistance zone around the 0.62 handle where the price got rejected from several times in the past days. This is where we can expect the sellers to step in with a defined risk above the level to position for a drop into new lows.
The buyers, on the other hand, will look for a break higher to increase the bullish bets into the major trendline. The red lines define the average daily range for today although the price can easily extend beyond those levels given that we have the US CPI report ahead and it’s a key event.
Upcoming Catalysts
Today, we have the US CPI report, while tomorrow we get the latest US Jobless Claims figures.
