AUD/USD Forex Technical Analysis – US CPI Report Downside Miss Could Launch Short-Covering Rally

The Australian Dollar is edging slightly higher early Wednesday as the selling pressure on the major commodity-linked currency let up just a little as bearish players squared positions ahead of today’s U.S. Consumer Price Index (CPI) report.

Although sellers are relenting ahead of the inflation numbers, it’s going to take a major surprise to the downside to motivate shorts to cover aggressively and bring back the buyers.

At 05:32 GMT, the AUD/USD is trading .6964, up 0.0024 or +0.35%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $68.76, down $0.15 or -0.22%.

CNBC: …’Pivotal Consumer Price Index Report for April’

According to CNBC:  “Investors are eyeing what could be a pivotal consumer price index report for April, anticipating that the data shows inflation has already reached its height.

Economists warn that prices could remain elevated. The issue is how fast inflation could decline when it comes to determining how the Federal Reserve will respond with interest rate hikes.

CPI is expected to rise 0.2% in April or 8.1% on an annualized basis. That’s compared with a 1.2% monthly increase or 8.5% gain year-over-year in March.”

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6911 will signal a resumption of the uptrend. A move through .7266 will change the main trend to up.

The minor range is .7266 to .6911. Its retracement zone at .7089 to .7130 is the nearest resistance area.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Wednesday is likely to be determined by trader reaction to .6949.

Bullish Scenario

A sustained move over .6949 will indicate the presence of buyers. Taking out .6986 will indicate the short-covering is getting stronger. This will make .6911 a new minor bottom. If this is able to create enough upside momentum then look for a possible near-term test of .7089 to .7130. Since the main trend is down, sellers are likely to return on a test of this area.

Bearish Scenario

A sustained move under .6949 will signal the presence of sellers. Taking out .6911 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the June 30, 2020 main bottom at .6833.

Side Notes

Essentially, a U.S. CPI miss to the downside could drive Treasury yields and the U.S. Dollar lower. This could trigger a strong AUD/USD short-covering rally.

A bigger-than-expected CPI print could put the pressure on the Fed to raise rates more aggressively. This would be bearish for the Aussie.