The Australian dollar could be a leader on Tuesday
The Australian dollar has rallied significantly against the greenback during the trading session on Monday, which we have seen across the board when it comes to the USD. As traders began to get excited about the prospect of Russia losing some of its advances in Ukraine, it was a completely “risk on” type of day. That being said, not much has changed from a macroeconomic standpoint, and I suspect this continues to be a “fade the rally” type of situation in favor of the US dollar.
Technical analysis
You look at the chart, you can see that the 50-Day EMA is sitting at roughly 0.69, which is also an area that has previously been supported. Because of this, “market memory” could come into the picture, and at the first signs of exhaustion, I suspect that the Australian dollar may lead the way for other currencies to continue falling against the greenback. Yes, I can see that there is a potential “double bottom” at the 0.67 level, so that is something to be aware of. At this point, it’s not so much whether or not it’s a double bottom, but whether or not the market has enough momentum to break through that area. Perhaps it just needed to back up a bit.
If we were to break down below the 0.67 level, that would be very negative for the Australian dollar and would see the US dollar spiking against almost everything. That being said, we had come a long way in a very short amount of time when it comes to US dollar strength, so does make a certain amount of sense that we have seen the US dollar give up some of the gain.
On the other side of the equation, if we break significantly above the 50-Day EMA, it could lead the markets to look to the 0.70 level, possibly even the 200-Day EMA above. At this point, it is going to be all about risk appetite around the world, so this is a market that’s probably going to follow stock indices and other risk assets.
Fundamental factors
There is a very obvious fundamental number coming out early in America on Tuesday, and that is the Core CPI figures. At this point, if the CPI numbers come out hotter than expected, you can see this pair drop rather significantly. However, if the number comes in lighter than anticipated, meaning less than 0.3%, we probably will have more of a “risk on rally” in the short term. Nonetheless, the Federal Reserve has been pretty blunt about the fact that it is going to continue hiking rates regardless.
