The Forex market had a big day yesterday, with US CPI (inflation) data released which was stronger than expected. This is usually the most important data point for the most important currency in the market, and it certainly made an impact. There has been a strong bearish price breakdown following this data release. This is putting the AUD/USD currency pair in focus, as well as the fact we just had some surprisingly poor Australian employment data. Let’s look at the two currencies first.
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AUD/USD Fundamental Analysis
The Australian Dollar’s fundamental outlook has turned more bearish after today’s unexpectedly weak employment report. Australia lost 39,300 jobs in September against expectations of a gain of around 20,000, while unemployment held at a five-year high of 4.7%, prompting traders to sharply reduce expectations of another RBA hike in November. The existing 4.60% cash rate still offers yield support, but signs that previous tightening is weakening the economy reduce the prospect of further increases. AUD/USD consequently fell towards a one-week low, although broader US Dollar weakness has limited the decline. The next major domestic catalyst is the 28 October inflation report: persistent underlying price pressure could revive hike expectations, while softer inflation would reinforce the case for a pause and leave the Aussie vulnerable.
The US Dollar’s fundamental outlook remains supported, but yesterday’s inflation-driven boost has partly unwound. September headline CPI rose to 3.7% annually, while core prices increased 0.3% monthly against a 0.2% forecast, pushing October Fed rate-hike expectations from roughly 20%–22% towards 45%–50% immediately after the release, although it quickly lowered to about 30%. Michelle Bowman and Mary Daly subsequently signalled that the Fed could wait, tempering those expectations, while a Treasury rally pulled yields lower and the Dollar back from its fresh 18-month high. Persistent inflation still favours tighter policy and offers underlying Dollar support, but further gains will require renewed conviction about additional hikes rather than simply another elevated inflation reading.
It looks like fundamentals and sentiment are supporting a bearish case in this currency pair.
AUD/USD Technical Analysis
The price chart below shows that the price of this currency pair had made a strong bearish breakdown from its high above 0.7000, with the price making three clear, strong, and impulsive legs lower, breaking below the price channel and printing a very clear resistance level on its way down at 0.6978.
The short-term bearish momentum is strong and might persist, with the strong US Dollar gaining here more solidly than it is against any other currency, assisted by the poor Australian data released a few hours ago.
The price is now close to the support level at 0.6932 which was bullishly inflective when price last reached this area on Thursday last week.
I think that the price will probably at least consolidate for a while at 0.6923. It could be possible to take a breakdown trade after the consolidation ends if the support is broken, but then there is support close below above the round number, so reward to risk potential could be limited.
A potentially better short trade opportunity could come after a bullish retracement and then the start of another bearish impulsive leg lower, but I doubt this will set up today.
I am not interested in any long trades here now.
AUD/USD H1 Price Chart – Bearish Breakdown
Support & Resistance Levels
My previous AUD/USD signal on 14th October was not triggered.
Risk 0.25%.
Trades may only be entered prior to 5pm Tokyo time Friday.
Short Trade Idea
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of $0.6978 or $0.7011.
Place the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the 1H1 time frame H1H1H1 time frame immediately upon the next touch of $0.6923 or $0.6907.
Put the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
Regarding the US Dollar, there will be releases of PPI and Retail Sales data at 1:30pm London time. There is nothing due concerning the Australian Dollar
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