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AUD/USD Risks Exhaustion on Record Low Core Inflation

AUD/USD Risks Exhaustion on Record Low Core Inflation

2017-01-24 18:01:00
Michael Boutros, Strategist

Talking Points

AUD/USD 240min

AUD/USD 240min Chart

Technical Outlook: We presented this setup in week’s analyst pick, and heading into tonight’s Australia Consumer Price Index (CPI), the outlook remains the same. Aussie is up nearly 6% off the monthly lows and the immediate advance is vulnerable near-term sub-7600 with ongoing momentum divergence further highlighting this risk. That said, it’s important to keep in mind the broader focus remains higher while above the median-line extending off the November low which converges on the 50% retracement at 7384(bullish invalidation).

Interim support rests at 7503 backed by the median-line confluence at ~7473 and the 38.2% retracement at 7437. Note that we’ll need to modify this retracement in the event a new high is registered. A breach above the upper parallel shifts the focus towards topside resistance targets at 7643, the August high-day close at 7699 & critical resistance into 7735/56.

Remember, that markets are already expecting core inflation (Trimmed Mean) to dip to its lowest read on record at just 1.6% y/y (down from a previous low of 1.7%)- this will be the focus print heading into the release and a miss may be just the event needed to trigger a near-term correction. Ultimately, a pullback into structural support (currently just below 7400) would be seen as an opportunity for the long-side.

  • A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are short AUD/USD - the ratio stands at -1.15 (47% of traders are long)- weak bullish reading
  • Long positions are 7.5% higher than yesterday and 14.8% above levels seen last week
  • Short positions are a mere 1.7% lower than yesterday but 3% above levels seen last week
  • Open interest is 2.4% higher than yesterday and 7.6% above its monthly average
  • The current dynamic of increasing long positions on building open interest does leave the advance vulnerable near-term. Look for a build in net short exposure to further support the broader advance seen off the monthly low.

Relevant Data Releases

AUD/USD Risks Exhaustion on Record Low Core Inflation

Looking for trade ideas? Review DailyFX’s 2017 1Q Projections

Other Setups in Play:

---Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex contact him at or Click Here to be added to his email distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.