AUD/USD squares up to resistance ahead CPI, ASX bulls look for dips

US consumer sentiment rose to a 6-month high, and the expectations index rose above 80 for a second month. A reading below 80 tends to point towards a recession within the next year. This plays into the narrative of incoming Feed cuts guiding the US economy towards a soft landing, which helped the Dow Jones reach another record high on Tuesday.

However, once again the Dow’s ‘record high’ underwhelmed with a marginal gain of 0.2%. Dow futures are yet to test their own record high, the S&P 500 also seems reluctant to do so and the Nasdaq’s recovery continues to trail behind both of its Wall Street peers.

Keep in mind that Nvidia release their earnings after the US stock market closes on Wednesday, and that has the potential to make or break sentiment on Wall Street. The Nasdaq will bare the brunt of the major tech stock’s moves, but it could also impact the S&P 500 and, to a lesser degree, the ASX 200. Nikkei traders should also keep an eye on Nvidia’s earnings given its close ties to the Nasdaq.

• Crude oil snapped a 3-day wining streak as oil inventories fell less than expected
• Gold trades less than $20 from its record high, and intraday momentum suggests it could get tested today
• The US dollar index closed at its lowest level of the year, although bearish momentum continues to wane
• GBP/USD rose to its highest level since March 2022, with the pound finding support after cautious remarks from BOE’s Bailey are in stark contrast to a dovish Fed

Events in focus (AEDT):

Australia’s monthly inflation report will be closely watched, even if it seems unlikely to move the dial on the RBA’s monetary policy. The RBA 30-day cash rate futures have fully priced in a 25bp cut in December, and another in April. They also imply a 20% chance of a cut at their next meeting.

I suspect this dovish market pricing to be wishful thinking with CPI and employment data remaining so firm. I also think we’d need to see weighed mean CPI fall to 3.4% y/y or lower before taking prospects of a cut seriously, but in reality we’d need stronger signs of an incoming recession over a soft landing.

If anything, there may be a greater chance that weighted CPI does not fall to 3.4% from 3.8% as forecast. And an unwelcome rise in prices m/m could actually wend up sending AUD/USD higher for the day.

• 11:30 – Monthly CPI report, AU construction work
• 15:00 – JP leading index, coincident indicator
• 15:15 – Fed Waller speaks
• 16:00 – DE consumer confidence
• 18:00 – EU loans
• 22:15 – BoE MPC member Mann speaks

AUD/USD technical analysis:

Despite the strong rally from the August low, the July high now stands in the way of the next leg higher for AUD/USD. Its closely related NZD/USD peer is taking the lead, having surpassed its June high on Friday and continuing higher on Tuesday. So perhaps a less-soft-than-expected inflation print from Australia today could prompt resistance to give way.

But it is not exactly clear skies above for the Aussie. Trend resistance from the 2021 high lands at around 0.6830, which is less than a typical day’s range from current prices. The upper 1-day implied volatility level also sits at 0.6817, which shows traders are not expecting too much from today’s figures.

Still, there is a clear uptrend on the 1-hour chart. The recent consolidation had the majority of trading activity around 0.6775, making it an area for bulls to consider buying dips. The 1-hour trend remains bullish above 0.6760, a break below which assumes a deeper pullback.

A break above 0.6800 brings 0.6817 and 0.6830 into focus for bulls. But for now, I remain cautiously bullish around these levels given the significance of the trendline as a potential resistance level.

ASX 200 futures (SPI 200) technical analysis:

A shooting star formed on Tuesday and prices continued lower for the ASX futures market, pointing to a weak open for the cash market today. It is too soon to say whether this is the beginning of a reversal lower, or it has another trick up its sleeve to push prices towards 8100.

But with prices hovering around 8,000 after a pullback and the 4-hour RSI having reached oversold, bulls might be able to enjoy a cheeky long punt over the near term.

The 4-hour trend remains bullish above 7940, with the monthly and weekly pivot points surrounding it. Dips towards the overnight low could appeal to bulls for a move up to the weekly R1 pivot at 8040.

Like AUD/USD, I’m cautiously bullish over the near-term only given the big resistance levels overhead. Daily trading volumes have been declining throughout the entire rally from its August low, and prices are trying to move lower on the daily after a bearish divergence with RSI (2), and that is yet to reach oversold.  

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge