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Technical Reports

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The AUD/USD posted a small gain on Friday after the previous day’s big sell-off. The move represents position-squaring ahead of Tuesday’s major Reserve Bank of Australia’s monetary policy meeting. Weaker-than-expected U.S. GDP news also helped underpin the market.

Late last week because of weak business investment data on Thursday and stronger-than-expected U.S. inflation data, traders increased the odds of an RBA rate cut from 38% to 50%. This shows that a large number of traders are now expecting the central bank to cut to a new record low of 2 percent on March 3.

The markets are jittery as we begin the week. Besides the RBA meeting, traders are also concerned about the timing of the first Fed interest rate hike since 2006. Markets expectations for the next rate hike have been all over the map lately.

The recent Fed minutes suggested a possible September date, up from June. Last week, Fed Chair Janet Yellen reiterated that the Fed was in no hurry to raise rates because of a struggling labor market and low inflation. At least two Fed members delivered hawkish comments during speeches.

Since last Thursday’s CPI report was stronger than expected, the emphasis this week will shift to Friday’s major U.S. Non-Farm Payrolls report. A strong report will likely mean the Fed is back to a mid-year rate hike. After an initial reaction to the RBA announcement, the AUD/USD may go into a range from Tuesday to Friday as investors await the U.S. jobs data.

Daily AUD/USD

Technically, the main trend is down on the daily chart. Last week, sellers produced a potentially bearish closing price reversal top at .7912. This is putting short-term pressure on the market. This is also the price at which investor sentiment shifted back to down in anticipation of an RBA rate cut. So it may be taken out if the RBA refrains this time and offers language to suggest that a May cut is also off the table.

Based on the close at .7812, other potential resistance levels are .7824 and .7872.

Crossing to the bearish side of a pair of angles at .7815 and .7794 will be a sign of weakness today. This could trigger a break into the first support at .7768. This is followed by additional targets at .7735 and .7720. These levels are likely to be hit if speculators increase bets of an RBA rate hike, but more likely on Tuesday if the RBA actually refrains.

The tone of the market today will likely be determined by trader reaction to .7815. Look for sideways action if the market gets trapped between a pair of 50% levels at .7824 to .7768. Prepare for volatility and above average volume this week, first on Tuesday and then on Friday.