AUD/USD weekly outlook: Trimmed-mean CPI, PCE inflation on tap

• The Japanese yen stole the show last week with strong gains coming on renewed BOJ-hike bets
• AUD/USD rose for a third week, although a doji formed below resistance to suggest the upswing is exhausted
• My bias this week is for a weaker AUD/USD, on the assumption of softer inflation and the fact that we’ve seen a decent bounce from the lows already
• Australia’s monthly trimmed-mean inflation and US PCE are the key events for AUD/USD traders this week

 

 

The RBA’s 25bp cut is not expected to be followed by any further easing until H2, according to the RBA’s forecasts. And while they have allowed for two further cuts, they also provided ample of wriggle room to stand pat should inflation not continue to fall. This makes Wednesday’s weighted-mean inflation figure the standout domestic economic event this week.

 

 

A trimmed mean of 2.7% y/y or lower will appease doves and AUD/USD bears. Although if you look at the rate of decline over the past six months, perhaps it could be 2.5% or lower, given inflation has slowed down at a rate between 0.2% to 0.5% in six of the past 7 months.

 

 

AUD/USD futures – market positioning from the COT report:

• Large speculators reduced net-short exposure to AUD/USD by -8.7k contracts last week, bring the short-covering 2-week total to -18.5k contracts
• They also increased longs by 6.5k contracts, and increased their bullish exposure for a fifth week totalling 21k contracts
• However, asset managers trimmed longs and shorts, and as we’ve seen a 3-week rebound end with a doji below resistance, perhaps a retracement lower is due

 

AUD/USD technical analysis

My 64c target has been reached, which incidentally sits just beneath a 38.2% Fibonacci ratio and 20-week SMA. With the potential for softer inflation from Australia and firmer PCE inflation from the US, my bias this week for AUD/USD is lower.

 

A 2-day bearish reversal pattern formed on Friday (dark cloud cover), and a break beneath Thursday’s low (0.6328) assumes a retest of the October 2022 / 2023 low (0.6277). Should the tide turn against the Australian dollar, bears could seek a move to the high-volume node (HVN) at 0.6214.

 

However, due to my suspicion that the low ~61c low was significant, I will be seeking bullish setups after the assumed retracement lower.

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge