AUD/USD Forex Technical Analysis – July 27, 2016 Forecast

The AUD/USD strengthened on Tuesday ahead of the key consumer inflation report that will likely determine whether the Reserve Bank of Australia cuts interest rates next month. Some say the strong rally was fueled by short-covering and position-squaring ahead of the U.S. Federal Reserve’s monetary policy announcement on Wednesday. Others believe the move was triggered by a sharply higher Yen, caused by doubts over whether the Bank of Japan will announce a strong enough stimulus package to help the Japanese economy.

Economists forecast quarter-on-quarter CPI to show a reading of 0.4%, up from -0.2%, likely solidifying the case for another rate cut as early as next week. Year-on-Year CPI is expected to come in at 1.1% versus 1.3% previously. The market is currently pricing in around a 60 percent chance of a rate cut in August.

Technically, the main trend is up according to the daily swing chart. Momentum shifted to down from July 15 to July 22. However, it has regained some strength since July 22.

The long-term range is .7145 to .7675. Its retracement zone at .7410 to .7347 is the primary downside target. This zone is controlling the longer-term direction of the market.

The intermediate range is .7285 to .7675. Its retracement zone at .7480 to .7434 stopped the slide last week at .7442. Taking out this zone will likely lead to a test of the long-term retracement zone.

If a short-term range forms between .7675 and .7442, its retracement zone at .7559 to .7586 will become the primary upside target. This zone is important because bearish investors are going to try to stop a rally and form a potentially bearish secondary lower top. Bullish traders are going to try to drive the market through this zone in an effort to make .7442 an new higher bottom.

Based on Tuesday’s close at .7501, the direction of the market today is likely to be determined by trader reaction to the downtrending angle at .7515.

A sustained move over .7515 will signal the presence of buyers. This could trigger an acceleration into the retracement zone at .7559 to .7586. This is followed by a pair of downtrending angles at .7595 and .7635. The latter is the last potential resistance angle before the .7675 main top.

A sustained move under .7515 will indicate the presence of sellers. This could ignite a break into the retracement zone at .7480 to .7434. This is followed closely by an uptrending angle at .7430.

Breaking .7430 will likely lead to a test of the long-term retracement zone at .7410 to .7347. A long-term uptrending angle passes through this zone at .7375, making it a valid downside target also.

Watch the price action and read the order flow at .7515 after the release of the CPI data. This will tell us if the report is bullish or bearish. Expect volatility.