AUSTRALIAN DOLLAR ANALYSIS
- Risk on triggered after Fed Chair Powell hearing.
- Major Australian linked commodities push higher.
- Bear flag pattern still holds.
- IG Client Sentiment (IGCS) bullish.
AUD/USD FUNDAMENTAL BACKDROP
Yesterday, Fed Chair Powell dampened hawkish hopes after emphasis was put on a mid-2022 inflation peak while reducing the ballooning balance sheet is likely to take place later this year. The U.S. dollar faded along with U.S. 10-year Treasury yields benefitting most USD crosses. The Australian Dollar was no exception with support from higher oil prices (inverse relationship with USD) enhancing commodity currency appeal. AUD associated commodities including natural gas, coal and iron ore all ticked higher giving added impetus to Aussie upside.
AUD/USD OPTION EXPIRIES TODAY:
- 0.6995-0.7010 (587M), 0.7180-90 (639M)
While these expiries are not extremely significant in size, it is always good to keep in mind as markets tend to push prices towards strike prices which may lead to a pullback from current levels as expiry looms.
ECONOMIC CALENDAR
Source: DailyFX economic calendar
The highlight of the week is undoubtedly U.S. inflation with both core and headline figures expected to come in higher than prior prints. An estimate beat could spur on higher Treasury yields favoring dollar upside. Should actual data come in lower than estimates, there may be short-term dollar weakness however from the Fed’s perspective one data point is unlikely to significantly alter the current hawkish outlook.
AUD/USD TECHNICAL ANALYSIS
AUD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
AUD/USD price action continues its spiral within the bear flag formation (blue) since early December. This weeks rally sees prices push above the 61.8% Fibonacci at 0.7183, opening up room toward the 0.7250 psychological level.
The Relative Strength Index (RSI) sits around the midpoint 50 level, suggestive of ambiguity around momentum. This could change post-inflation data which may catalyze a directional bias.
Key resistance levels:
- 100-day EMA (yellow)
- 0.7250
Key support levels:
- 0.7183
- 0.7100
- 0.6993
IG CLIENT SENTIMENT DATA HINTS AT NEAR TERM AUSSIE STRENGTH
IGCS shows retail traders are net long on AUD/USD, with 52% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-long is suggestive of a bearish bias however, the recent change in net shorts points to a bullish bias.
| Change in | Longs | Shorts | OI |
| Daily | -8% | 13% | -1% |
| Weekly | -28% | 69% | -8% |
Contact and follow Warren on Twitter: @WVenketas
