Originally published by AxiTrader
What a week, what a night.
Last week I was writing that the Aussie dollar was becalmed and in the doldrums. Yesterday it was that 0.7650 had to hold, and today it is that the Aussie is on the precipice if 0.7590 breaks.
In options terms that's the Vega - the volatility of volatility - that you can see there in where the Aussie has been and how that is reflected in my writing.
The reason I write that today because I don't want to get hysterical about further Aussie weakness when it at the outer edge of the uptrend from the 2016 low. Here's the weekly chart showing the set up at the moment. In overbought territory on the stochastics, just breaking down, and at risk of further falls should the catalyst arrive.
Of course, the chance of further falls if it breaks below 0.7590 are high. And on a day when we have a huge release such as Q1 CPI that's all the more important.
CPI data today is always critical to the debate on what the RBA might do. But given concerns about households, my sense is today’s outcome for Q1 price data in Australia will take on a materially greater significance given the current backdrop.
It’s clear that the RBA does not want to cut rates. It’s clear the RBA has signaled – in its own and the Governor's words – that the next move is likely higher for the cash rate. But it is also clear that with the unemployment and underemployment rates sticky and stuck at relatively elevated levels by global standards at the moment if the RBA wants to run the economy a little hotter to help households it could – as long as inflation remains quiet.
The outcome of today's inflation data could be of vital import to the Aussie dollar down here on support at 76 cents. A weak read could increase chatter that rates are on hold for a very long time and increase the number of pundits – like me – who are willing to think out loud that perhaps a cut wouldn’t hurt.
The alternative is also the case. A bigger than expected rise in prices could put such chat to bed and likely see the Aussie find support. If so I’ll likely sell into that rally. Levels to watch, 0.7590 then 0.7530. Topside, it’s 0.7650, then 80.
Looking at the 4-hour Double Booly Band chart I use for intraday trading it's clear the AUD/USD is in a steep downtrend. While under the 1 standard deviation level - 0.7637 at present - and the 13 period EMA at 0.7659 the down trend remains intact and that's the short term sell zone I'll be targetting.
Only a move above 77 cents would change this short-term outlook.
Have a great day's trading.