AUD/USD started the week with sharp upside movement ahead of the Federal Reserve monetary policy decisions and the Reserve Bank of Australia (RBA) minutes. Technically, the pair is expected to take retracement from the upper channel of the rising wedge formation.
As of this writing, the pair is being traded near 0.9084. Resistance may be noted around 0.9141 that is the upper trendline of the wedge. A break and daily close above the rising wedge could open doors for fresh multi-month highs above the 0.9150 resistance area; this however appears a less likely scenario due to Fed tapering expectations.
On the downside, support can be seen around 0.8978 which is the channel support of the wedge. A break and daily close below the rising wedge could push the pair into relatively stronger bearish trend exposing 0.8910, the 61.8% fib level, ahead of 0.8861 which is the 50% fib level and short-term pivot zone for the pair.
On Tuesday, the Australian central bank is due to release the minutes from the March monetary policy meeting. The policy makers decided to keep the interest rate unchanged in March meeting amid fragile growth in the labor market.
In the monetary policy statement, the central bank expressed concerns over the constantly rising Aussie dollar. The bank termed the Australian currency “uncomfortably strong.” Investors will analyze the minutes very closely for clues on the future monetary policy direction. If the minutes showed any discussion regarding intervention in the open market, then it could incite huge selling pressure in AUD/USD.
The Federal Open Market Committee (FOMC) monetary policy meeting is going to take place in Washington from March 18-19. Analysts are unanimous that the Federal Reserve will keep the cash rate steady at 0.25% on Wednesday. The central bank, however, may reduce the monthly bond purchases by $10 billion to $55 billion after more than expected increase in February nonfarm payrolls. If the bank announces tapering on the third consecutive month, it could spur huge bearish momentum in AUD/USD.
US Inflation Data
The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) figures tomorrow. According to the average forecast of various economists, the CPI—a main gauge for inflation—reduced to 1.2% in February from 1.6% in January. Similarly, analysts have predicted a steady 1.6% reading in the CPI excluding energy & food prices– relatively more accurate measure for inflation– for the previous month. Generally speaking, high CPI readings (close to 2%) are considered good for an economy. So if the CPI data comes better than expectations, then it could cause strong bearish pressure in AUD/USD and vice versa.
A number of risk events are due this week that might spur high volatility in AUD/USD. Trading on breakout could be a good strategy in this scenario.
To contact the writer of this story: Usman Ahmed at firstname.lastname@example.org