AUD/USD Risks Exhaustion on Record Low Core Inflation

2017-01-24 18:01:00

Talking Points

AUD/USD challenges resistance into 7600 ahead of Australia CPI
Updated targets & invalidation levels
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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