AUD/USD Forex Technical Analysis – Sustained Move Under .7002 Puts .6829 on Radar

The Australian Dollar is trading lower on Monday, following a broad-based sell-off in the Asian stock markets and the U.S. futures markets. The catalyst behind the selling pressure is Friday’s U.S. consumer inflation report that showed a bigger than expected surge in U.S. inflation.

The red-hot U.S. Consumer Price Index (CPI) is raising concerns about growth and the outlook for interest rates, pressuring higher-yielding currencies. The inflation spike is likely to sway Federal Reserve policymakers to follow through on their plans to aggressively raise interest rates in an effort to combat inflation.

At 07:43 GMT, the AUD/USD is trading .7007, down 0.0038 or -0.54%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $69.81, down $0.51 or -0.73%.

Aussie Sell-Off Reflects Fear of Hawkish Fed

Today’s weakness in the AUD/USD is signaling a fear that the Fed will raise rates at a much faster pace than the Reserve Bank of Australia (RBA). This means traders expect to see a jump in U.S. Treasury yields and consequently a stronger U.S. Dollar over the near-term.

Most traders expect the Fed to announce on Wednesday a 50-basis-point rate hike. But Michael Pearce, Senior U.S. Economist at Capital Economics, raises the possibility of a 75 basis point hike.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since the June 3 closing price reversal top. A trade through .7283 will negate the chart pattern and signal a resumption of the uptrend. A move through .6829 will change the main trend to down.

The minor trend is down. This confirms the shift in momentum. A trade through .7246 will change the minor trend to up.

The short-term range is .6829 to .7283. The AUD/USD is currently testing the lower level of its retracement zone at .7056 to .7002.

On the upside, the nearest resistance is a retracement zone at .7144 to .7218.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term Fibonacci level at .7002 is likely to determine the direction of the AUD/USD on Monday.

Bearish Scenario

A sustained move under .7002 will indicate the selling pressure is getting stronger. This would put the May 12 main bottom at .6829 on the radar. There are two ways to get there. First, by a slow grind, or second, by an acceleration to the downside.

Bullish Scenario

A sustained move over .7002 will signal the presence of buyers. This could trigger an intraday surge into .7056. Overtaking this level could create the momentum needed to challenge .7144.