Technical Sentiment: Bullish

Key Takeaways

• Australian Bureau of Statistics is about to release Producer Price Index on Thursday night, consensus at 0.2% vs -0.1% in the previous quarter;
• AUD/USD sprang higher despite better than expected U.S. Advance GDP reading at 3.5%;
• Traders are still digesting the news; hopefully price action will provide additional confirmations for the main direction.

Despite a massive sell-off on Thursday, AUD/USD sellers were unable to break a major support. This left price hanging in bullish territory with a higher high – higher low swing configuration, a baffling situation for USD bulls.

Technical Analysis

AUD/USD spot is currently trading above the 0.8800 handle in the early hours of the U.S. session, showing a mixed short-term bias due to an unexpected bounce off 0.8755. Although Wednesday’s Bearish Engulfing Bar has already been confirmed, together with price crossing below 200 Moving Average on 4H, the pair was unable to sustain this sell-off below two trendlines, both of which formed a large triangle formation up until late last week.

This event puts AUD/USD bears at risk as short-term buyers are speculating a possible recovery higher. Based on today’s technical landscape, we cannot exclude a recovery above 0.8813 (200 Simple Moving Average on 4H), which could eventually lead to a re-test of 0.8900. More than anything else, traders should be cautious as this area is turning into a range, with technical signals decreasing in value with each choppy swing. Overall, breakout trades above 0.8900 and below 0.8750 are likely to fare better than trades within the range.

AUD/USD downside will only be confirmed by a dip below 0.8750, paving the way towards 0.8650, where another major decision will take place.

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Prepared by Alex, Currency Strategist at Capital Trust Markets