It’s been an odd trading week in Fx. The last pieces of US economic data surprised massively, employment negatively last Friday, while CPI inflation beat all expectations yesterday.

As one would suspect, the data surprises triggered a rollercoaster ride in USD pairs. The dollar was heavily down on Friday on the abysmal NFP report, but as of today, all of those moves are reversed after the much hotter than forecasted inflation print yesterday (4.2% actual vs. 3.6% expected).

The current chaotic state of the market can also be seen in yesterday’s action after the CPI release. The initial market reaction was USD positive as markets took the hotter inflation as a sign for Fed tightening. But then, traders remembered Powell’s recent comments that the Fed views any inflation overshoots as transitory and not as a reason to raise rates for the foreseeable future, and the dollar was sold. Finally, in the last wave, the dollar was bought again as the bulls prevailed, and the currency ended the day higher across the board.

Still, yesterday’s positive daily close doesn’t mean the new USD bull leg has started. Neither technicals nor fundamentals are giving a clear directional signal at the moment. Fx traders will have all focus on Fed’s communication on inflation in the coming weeks. But until the Fed does something about it, or future economic data forces them to, it looks like the name of the game is range trading for the dollar.

Like most other USD pairs, the AUDUSD had a similar reaction to the latest surprises in US macroeconomic data. The same dynamics around the Fed’s response to rising inflation will be one of the main drivers for AUDUSD too. 

But unlike other major pairs, the technical picture looks clearer on AUDUSD and could give us some potential opportunities from either the bearish or bullish side. Below we discuss both scenarios for these potential technical setups as well as the situation on the chart.

The daily chart shows the uptrend from 2020 stalled, and the price has been moving sideways since the start of 2021. The most recent bull leg that started in April is so far well-defined inside of an ascending channel (see chart below). The price has now reached the support line of this channel around the 0.77 level. Making this technical zone more significant are the 55-day (blue) and 100-day (orange) moving averages. The recent lows and highs from the past two months are also in this same 0.77 area. 

In other words, AUDUSD is at a key technical zone here near the 0.77 level (0.7675-0.77 is the actual zone). 

There are two probable scenarios going forward:

• If AUDUSD starts moving up, it will stay inside the ascending channel and reach its upper border toward 0.79 (bullish scenario). 
• On the other hand, if the bears prevail and the price breaks the 0.77 support zone, there will be few hurdles to stop AUDUSD from falling toward the March lows in the 0.7550 area (bearish scenario).

The specific levels for trading the bull and bear scenario are laid out below.

Entry: 

• Wait for stabilization of the price action around this 0.7675-0.77 support zone.
• Look for a confirmed bullish signal or pattern on intraday charts (4h and 1h) to trigger the entry. (this could mean that the actual entry is on a move above 0.7750).

Stop: 

• Below the 0.7675-0.77 support zone;
• Or based on the specific entry signal for a tighter stop.

Targets:

•  The 0.79 zone and the upper line of the channel

Entry: 

• On a bearish breakout of the 0.7675-0.77 support zone;
• To stay on the safe side, it would be prudent to wait for a confirmed breakout instead of rushing to enter as soon as the price moves below the support.

Stop: 

• Above the 0.7675-0.77 zone.

Targets:

• 1st - The March lows toward the 0.7550 - 0.7575 zone (see chart);
• 2nd - 200-day moving average (around 0.75)

• N/A; (long EURCHF not triggered yet)