Price AnalysisTrading Signals

AUD/USD: Bear Test Around 100-day Simple Moving Average While Looking Out for 0.7100

After overcoming a 2-week increasing trendline in the past week, the AUD/USD pair went underneath close to 0.7120 in a subsequent 3-day decline while getting into the new week’s European Session.

AUD/USD price chart. Source TradingView

The Current Trends

With that, the pair swings around the 100-day simple moving average (SMA). Nevertheless, the bearish Moving Average Convergence/Divergence indicators and other quotes’ sharp turn from 0.7250, displayed on Friday, has kept the pair’s traders a bit hopeful.

Therefore, a definite downward break of 0.7115 has become requisite for AUD/USD bearish traders to extend the recent dips towards the 0.7100 benchmark. After that, January’s drop of 23.6% Fibonacci retracement close to 0.7050 will come before 0.0700 psychological magnets in testing the AUD/USD bearish trades, not overlooking the annual bottom around 0.6965.

As an alternative, the support line close to 0.7155 and the 200-day simple moving average zone of 0.7170 could restrict near-term upward movements of the AUD/USD pair. It also should not be overlooked that AUD/USD bullish traders are cautious till the quotes refresh to a monthly high, presently around 0.7250. 

Since last week, the Australian dollar has been at the mercy of forces beyond its control. While the Australian Reserve Bank has its hands tied, the Federal Reserve in the US is preparing every measure to put the escalating inflation under firm control.

Interest rate increases are more imminent in the US economy now following the annual consumer price index report that got us to 7.5% last week. It is the highest level it has got since 1982, and it is up to 0.3% more than the expected point.

Deja Vu?

In 1982, the Chairman of the Federal Reserves, Paul Volker, had support from the White House to control the increasing inflation by introducing several interest rate increases. It did finally reduce the consumer price index then, but it was at the price of two recessions.

Having a loose monetary policy over some years has brought the US economy to the possibility of facing that trend again. Although the Federal Reserve has indicated March to be the take-off period for the interest rate increase, a lot of market players are continuously expecting it to come sooner and for the momentum of subsequent increases to be rapid. 

The US Treasury bond yields curve went up following the consumer price index report, especially in the short end of it. There is a spreading concern that the Federal Reserve might be making a fundamental mistake if they don’t salvage the situation early enough.

In Australia, on the other hand, the jobs report is expected to be published on Friday. Its ramification on the Australian dollar will resonate with the activities of the pair.   

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