The AUD/USD currency pair trended lower in the early hours of Wednesday Morning after the announcement of a dovish 0.5% increment in Wage Price Index (WPI). Economic analysts had predicted an increment of 0.6% for the March 2018 quarter. The annualized WPI came inline with analyst expectations growing by 2.1%.
Following the news, the AUD/USD currency pair nosedived 20 basis points to trade at about 0.7455 from Tuesday’s close of 0.7475. Nonetheless, the pair quickly rebounded to return to the previous level. It has since gone above 0.7500 and is within touching distance of 0.7550.
The Aussie’s rejection of a trip further south might have surprised many traders as expectations were high for the pair to hit at least 0.7400 before rebounding. However, as demonstrated on the 4-hourly chart below, the AUD/USD currency pair rejected this move quickly bouncing to match towards 0.7500 and now, expectations are high for a continuation of this rebound.
The Aussie is currently exchanging at about 0.7520, which is quite impressive considering the level it opened at this week and the news about Wage Price Index. According to experts, traders are ignoring Australian macro data and instead looking at the Chinese data.
Australia relies heavily on China for exports and good numbers from the Asian giant’s productivity would suggest a brighter future for Australia. As such, the Australian Dollar does from time to time lean on the Chinese figures to find strength and this could be what is currently happening in the Aussie market.
In April, China’s economy maintained a steady growth of 6.9% largely backed by higher-than expected industrial output. The job market also remained steady last month with the unemployment rate falling by 0.2% from March to about 4.7% in 31 major cities. This is again a sign that productivity in China will continue to improve in the foreseeable future.
So, what can traders target for trading opportunities in the coming days and weeks? The chart above has some insightful suggestions.
Looking at the chart, the pair seems to be trading within a descending channel. As pointed out a couple of paragraphs up, traders would have expected the AUD/USD pair to hit 0.7400 denoted by the red arrow above. However, there was a rejection of this move, which also triggered the current rebound that has taken the pair to within touching distance of 0.7600.
However, if the AUD/USD is to hit 0.7600 soon, it will have to overcome a major resistance at 0.7550 (R1). This level can be a good short-term target for about 30 pips worth of profit. The intermediate bullish target once the 0.7550 and 0.7600 levels are breached rests at 0.7800 (R2), which would result in nearly 300 pips worth of profits.
But reaching that target cannot be dictated by the performance of the strength of the AUD alone. The pair will also have to rely on a weaker USD, which even given the current circumstances revolving around trade wars, is unlikely.
So, should the USD take its mantle and fire back thereby causing a major pullback from the current rebound, then traders can start to look at targets downwards. Currently, the two main short-term bearish targets can be found at (S1) at 0.7447 and (S2) 0.7336. They are both close, so, a downward movement could easily skip past (S1) if the market sentiment turns bearish. But the key level to look at should that happen would be the recently rejected 0.7400.
The weekly chart below also supports a momentarily upward movement with the overall momentum continuing southwards.
As shown in the chart, AUD/USD pair seems to be currently pinned within a descending channel, in this case denoted by the (mini descending channel) above, which took the pair outside of a major ascending channel in late April. The pair has since failed to rally back to the main channel and looks set to continue trading within the mini channel in the foreseeable future.
As such, traders will be looking at short-term bullish opportunities while maintaining an intermediate bearish outlook.
Again, both short-term targets (R1) at 0.7550 and 0.7600 are confirmed on the daily chart from the 4-hourly chart. 0.7800 (R2) also remains the main intermediate target should the pair maintain the current rebound.
And when we look at the bearish targets, 0.7450 at (S1) also holds while the main support at the 0.7400 zone looks clearer now. However, if the AUD/USD pair was to hit 0.7400 in the next few weeks, it would be the first time it has done that since June last year. So, it could as well be a new 12-month low by the time it happens considering it is May, already.
In summary, the AUD/USD currency pair seems poised for a short-term move upwards, but this might not last long as the intermediate momentum is seen taking the pair downwards.