AUDUSD
Ever since it broke above 0.7 level this summer, the AUDUSD pair did not look back anymore. It reached a high of 0.7414 before correcting close to 0.7 again.
The price action reveals the importance of the round number for the pair. But it also shows a strong correlation with the stock market in the United States. This correlation will likely persist all the way until the U.S. elections are behind, and maybe even more.
Consider the latest developments on the AUDUSD 4h chart. The price retraced from 0.74 just as the stock market corrected. And then, the main stock market indices rebounded, and so did the AUDUSD.
This is, if you want, a USD move rather than an AUD influence. Hence, AUDUSD traders must focus these days more on what happens in the United States.
Later today, the CPI in the United States is expected to decline further. The monthly Core CPI is projected to drop to 0.2% from the previous 0.4%, in sharp contrast with the monetary developments in the United States.
So far, for the last three months, the Core CPI has surprised to the upside. Even single release since July topped forecasters’ estimates. If today’s data shows another improvement above the 0.4% level, the chances are that the market will start to price in the seriousness of the Fed regarding average inflation targeting.
From a market geometry point of view, the AUDUSD looks poised to retest the trendline offering dynamic resistance. At the same time, the 0.7 proves to be strong support.
Until the U.S. election, the two levels (i.e., dynamic resistance and horizontal support) will likely contain the price action. Bears would like to sell against dynamic resistance, and bulls to buy the closer the price comes to 0.7, using tight stops and risk-reward ratios bigger than 1:2.
