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AUD/USD Rebound to Benefit from Sticky Australia CPI

AUD/USD Rebound to Benefit from Sticky Australia CPI

David Song, Strategist

Talking Points:

- AUD/USD Threatens Near-Term Resistance Ahead of Australia CPI Report.

- GBP/USD Rebound Vulnerable to Lackluster 4Q U.K. GDP Print.

- USDOLLAR Risks Larger Pullback Ahead of FOMC Rate Decision.

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AUD/USD

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Longer-term outlook for AUD/USD remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish formations carried over from the previous here, but the pair may stage a larger rebound ahead of the Reserve Bank of Australia (RBA) interest rate decision on February 2 as the oscillator continues to come off of oversold territory.
  • With Australia’s Consumer Price Index (CPI) anticipated to show a pickup in the headline as well as the core rate of inflation, signs of stronger price growth may keep a the RBA on the sidelines even though Governor Glenn Stevens keeps the door open to further insulate the real economy.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long AUD/USD since January 5, but the ratio remains off of recent extremes as it sits at +1.38 as 58% of traders are now long.

GBP/USD

GBP/USD Daily Chart
  • GBP/USD looks poised for a larger rebound as the RSI breaks out of the bearish formation from back in December, with the oscillator finally climbing out of oversold territory; stands at risk of carving a lower-high in the long-term series as it preserves the bearish formation from 2015.
  • With the 4Q U.K. Gross Domestic Product (GDP) report expected to show the growth rate increasing an annualized 1.9% following the 2.1% expansion during the three-months through September, a marked slowdown may dampen the appeal of the sterling as it dampens bets for a Bank of England (BoE) rate hike in 2016.
  • Will watch former support zones for new resistance, with a close above 1.4350 (23.6% retracement) to open up the next topside objective around 1.4500 (78.6% expansion) to 1.4520 (38.2% retracement).

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12243.89

12281.05

12239.72

-0.21

113.01%

AUD/USD Rebound to Benefit from Sticky Australia CPIUSDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR may continue to congest ahead of the Federal Open Market Committee (FOMC) interest rate decision as it retains the range-bound price action from the previous month, while the RSI comes off of overbought territory.
  • With the 2016 rotation, will keep a close eye on the vote-count as Chair Janet Yellen pledges to implement higher borrowing-costs over throughout the year; may take a similar approach to the European Central Bank (ECB) as the Fed is scheduled to release its updated forecasts at the March meeting.
  • With the USDOLLAR capped around around 12,273 (161.8% expansion) to 12,296 (100% expansion), will keep a close eye on former resistance around 12,176 (78.6% expansion) to 12,219 (November high) for new support.
AUD/USD Rebound to Benefit from Sticky Australia CPI

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Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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