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Analysis

AUDUSD Technical Analysis | The market pauses ahead of crucial inflation data

BY Janne Muta, M.Sc in Finance

|January 8, 2024

AUDUSD Technical Analysis – Australia's manufacturing sector, pivotal for economic growth, continues to contract, as indicated by the Manufacturing PMI below 50. This downturn, coupled with a reduction in commodity prices, impacts Australia's export-driven economy.

Concurrently, the cooling Australian housing market, evidenced by a deceleration in dwelling price growth, hints at consumer caution, possibly signalling a wider economic slowdown.

Additionally, contractions in both Australian Services and Composite PMI underscore private sector challenges, contributing to the Australian Dollar's recent depreciation. These negative factors points to a cautious economic outlook for Australia and are a risk factor for those considering to buy AUDUSD.

In contrast, the US economy displayed resilience with December's job report revealing an addition of 216K new jobs, surpassing expectations. However, downward revisions to previous months' data raised questions about the Federal Reserve's interest rate approach. A decline in the US services sector index added to these concerns.

At the same time, Market pricing, as seen in Fed Funds futures, suggests a 63.8% chance of an initial rate cut in March, with predictions of six 25 basis point cuts over the year. If this expectation remains the development would be dollar bearish and support the AUDUSD in the coming weeks.

The interplay of these contrasting economic scenarios in Australia and the US suggests a potential weakening of the AUD against the USD. However, anticipated US rate cuts may temper this trend, forcing AUDUSD traders to be focus on evolving economic indicators and central bank policies.

Upcoming Australian economic data includes retail sales (Tuesday) and CPI (Wednesday) releases. October's retail sales fell by 0.2%, marking the first drop since June, as consumers curtailed discretionary spending. This contrasts with analyst expectations of a 1.2% rise.

Meanwhile, the CPI increased by 4.9% year-on-year in October, below the anticipated 5.2%, reflecting a deceleration from September's 5.6%. Analysts had forecast a 4.5% rise. Both reports highlight changing consumer and price dynamics in Australia.

Summary of This AUDUSD Technical Analysis Report:

  • The AUDUSD has experienced a 5.3% rally after breaking above the 0.6500 - 0.6522 level, but retraced to 0.6676 last week. A break below 0.6640 might lead to 0.6580, while a move upwards could reach 0.6781. The 50-period MA trends downward, indicating bearish long-term pressure.
  • Yesterday's bullish rejection candle at the lower end of an ascending trend channel indicates potential upward movement. If today's trading establishes a higher low and the market rallies above 0.6748 – 0.6760 range, AUDUSD may climb to 0.6850. Rising MAs and a buy signal from the stochastic oscillator suggest potential upside momentum.
  • The 4-hour chart reveals a rejection of the downward move below the bull channel low, with AUDUSD staying within the bullish channel. Resistance at 0.6760, above yesterday's high of 0.6748, needs to be broken for the uptrend to continue. Alternatively. weakness, as implied by MAs, might lead to market breaking below 0.6640.

Read the full AUDUSD technical analysis report below.

AUDUSD Technical Analysis

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Weekly AUDUSD Technical Analysis

The AUDUSD has been on an upward trend after surpassing a key market structure level at 0.6500 - 0.6522. Since then, the market has rallied over 5.3% until it retraced to another market structure level at 0.6676 last week.

AUDUSD technical analysis suggests that if the market decisively breaks below last week's low of 0.6640, we could see it trading down to 0.6580. Conversely, a move towards 0.6781 could be likely.

The 50-period moving average is still trending downwards, indicating long-term bearish pressure. Concurrently, the stochastic oscillator is moving lower, signalling potential further downside before recovery. The latest reactionary high is lower than those in June and July, a sign of weakness and in line with the bearish indications from technical indicators.

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Daily AUDUSD Technical Analysis

Yesterday, the market formed a bullish rejection candle at the lower end of an ascending trend channel. This channel's low aligns closely with the market structure level identified in the weekly AUDUSD technical analysis section above.

If the market now creates a higher low in today's trading and breaks decisively above yesterday's high (0.6748), we could see AUDUSD trading up to the 0.6840 - 0.6871 range.

In this timeframe, the market is in an uptrend, as indicated by the bullish trend channel and the rising moving averages. The stochastic oscillator is in the oversold area and has given a buy signal, while the market is trading between the 20 and 50-period moving averages. This suggests a potential resumption of upside momentum in the market.

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Intraday AUDUSD Technical Analysis

The 4-hour chart shows how yesterday's move below the ascending channel was rejected. The market opened at the channel low, then dipped below it, but this move was quickly reversed, with AUDUSD trading within the bullish channel for the rest of the day.

The 4-hour chart also shows another resistance level above yesterday's high (0.6748) at 0.6760. These levels form a resistance area that the market must break through to continue the uptrend identified in the daily AUDUSD technical analysis section. Alternatively, if the market remains weak, as suggested by the moving averages, there is an increased likelihood of a break below yesterday's low (0.6640).

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Client sentiment analysis

46% of clients trading AUDUSD are holding long positions, while 54% are holding short positions. Client sentiment data is being provided by TIO Markets Ltd.

It’s good to remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

The next key risk events impacting this market:

  • AUD - Retail Sales m/m
  • AUD - CPI y/y
  • USD - 10-y Bond Auction
  • USD - Core CPI m/m
  • USD - CPI m/m
  • USD - CPI y/y
  • USD - Unemployment Claims
  • USD - 30-y Bond Auction
  • USD - Core PPI m/m
  • USD - PPI m/m

Potential AUDUSD Market Moves

If AUDUSD breaks above 0.6748 – 0.6760 range, a rise to 0.6850 could be possible, supported by bullish indications in the daily timeframe. Bearishly, a break below 0.6640 could see a decline to 0.6580, in line with the weekly timeframe's bearish MA trend and lower high patterns.

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How Would You Trade AUDUSD Today?

I hope this AUDUSD technical analysis helps you to make better informed trading decisions. Check the latest market analysis for other instruments and subscribe to receive them in your inbox as soon as they are published

While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

TIO Markets UK Limited is a company registered in England and Wales under company number 06592025 and is authorised and regulated by the Financial Conduct Authority FRN: 488900

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

DISCLAIMER: TIO Markets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

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Janne Muta, M.Sc in FinanceChief Market Analyst

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.