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Momentum Indicators Not Giving Directional Signals, With Buying Low and Selling High Recommended
Summary:
The monthly inflation report showed that CPI fell to 6.9% in November, although the quarterly inflation data had a greater impact. The market is looking for some clues as to when the Reserve Bank of Australia may end its current tightening cycle. At its December meeting, the RBA raised interest rates by a modest 25 basis points for the third consecutive time.
CLOSED
0.67000
Opening Price
0.68660
TP
0.66500
SL
0.64376 +0.00234 +0.37%
1028
Point
Profit
0.66500
SL
0.68028
Closing Price
0.67000
Opening Price
0.68660
TP
Fundamentals
The Reserve Bank of Australia raised interest rates by 25 basis points at its December meeting, in line with market expectations. It also hinted at a possible further tightening of monetary policy. Thus, while the RBA was expected to signal a pause in rate hikes, that expectation did not materialize.
In this respect, this interest rate decision was tougher than expected. However, it could not benefit the Australian dollar. This is because the ensuing statement supports the market's basic expectation that the RBA will ease policy soon. Whether the RBA will ease policy later than expected should not have much impact on the foreign exchange market. In this regard, the RBA's monetary policy should not continue to provide much support for the Australian dollar.
With the next interest rate meeting not due until late February, it is now the waiting time for the Reserve Bank of Australia. Inflation remains the RBA's top priority, but policymakers are aware of the difficulties rising interest rates are causing businesses and households. If there is some downward trend in inflation in the coming months, we can expect the RBA to raise rates again by 50 basis points in February, or perhaps even pause. Inflation expectations fell from 6.0% to 5.2% in November, which could indicate that inflation is finally moving lower.
Technical Analysis
AUDUSD stood firm near its uptrend line from two months ago last week and adjusted higher to test the 0.6800 level on Wednesday. Nevertheless, the pair is expected to end its four-day uptrend on Thursday as it is continuing its move lower from a one-week high of 0.6800 and extending its decline to a one-week low of 0.6710 in the early European session.
In the short term, despite the pair's recovery, the 38.2% Fibonacci retracement level of the 0.7660 - 0.6169 downtrend and the 20-day SMA limit the bulls to around 0.6740 for the eighth consecutive session.
Momentum indicators are not giving directional signals. The RSI is hovering in the 50 neutral zone and the MACD is clearly flattening on its 0-axis. That said, a downside move is more likely than an upside move as long as prices remain trading within the lower Bollinger band area.
If the trend line is broken near 0.6700, prices could fall toward the 50-day SMA at 0.6625. Further selling pressure could intensify at the neckline of the head-and-shoulders top pattern at 0.6520, where the 23.6% Fibonacci retracement level is located. A bigger drop to the 0.6460 level would inspire strong concern.
But on the bright side, prices could pull back to the 0.6629-0.6800 pivot point and then move slightly higher before continuing into an oscillating consolidation.
Overall, AUDUSD remains neutral in the 0.6700-0.6740 range. While a bullish breakout could attract fresh bulls, a stronger rally above 0.7000 is needed to escalate the short-term outlook. It is recommended to buy low and sell high.
Trading Recommendations
Trading Direction: Long
Entry Price: 0.6700
Target Price: 0.6866
Stop Loss: 0.6650
Valid Until: 2023-01-12 23:55:00
Support: 0.6682, 0.6672, 0.6650
Resistance: 0.6730, 0.6755, 0.6765
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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