AUDUSD Technical Analysis: Big day for Australia tomorrow with the inflation data release

KEY POINTS:US dollar weakened after soft US ISM Manufacturing PMIMarket pricing for the Fed remained unchanged around 62 bps of easing expected by year-endUS NFP the main event this weekFor the AUD, inflation data tomorrow is keyGiven the hawkish expectations, a soft report will likely trigger bigger movesSoft data should weigh on the Australian dollar, while hot figures should keep supporting itThe market is pricing a 32% probability of an RBA hike in February and a total of 42 bps of tightening by year-endFUNDAMENTAL
OVERVIEWUSD:The US dollar weakened
across the board yesterday following a soft US ISM Manufacturing PMI. The data wasn’t really surprising,
but after a strong rally in the European session, the greenback gave back all
the gains. In terms of macro, nothing
has changed in these two weeks. The latest NFP and CPI reports came both on the
softer side and the market is still pricing 62 bps of easing by year-end. The
data in December was taken with a pinch of salt given the shutdown related
issues, but the next releases will give us a clearer picture. The market expects the Fed
to cut in March at the earliest, so we will need very soft data this month to
force them to act sooner. Nonetheless, if the data continues to come in on the
softer side, the market will likely increase the total easing for 2026 and that
should weigh on the US dollar.On the other hand, if the
data shows strength, traders will likely pare back their rate cut bets and that
will likely offer the greenback some support.AUD:On the AUD side, the RBA at
the last policy decision sounded more hawkish following a series of higher-than-expected
inflation reports. The central bank also discussed whether a rate hike might be
needed at some point in 2026. The market is pricing a 32%
probability of a rate hike at the upcoming meeting in February with a total of
43 bps of tightening seen by year-end. Tomorrow, we get the monthly Australian
inflation data. Even though the RBA focuses more on the quarterly reports, traders
will likely take clues from the monthly report. That should influence rates
expectations and impact the Australian dollar. Given the hawkish
expectations, a soft report will likely have a bigger impact on Australian
assets. In such a case, we will likely see the AUD weakening across the board
and the Australian stock market rallying. On the other hand, another hot report
should keep on weighing on the stock market and support the Australian dollar.AUDUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can
see that we have formed a rising wedge, which is confirmed by the RSI divergence.
These patterns are divergent in nature as they form when momentum fades. The price
generally either bounces from the bottom trendline before rallying into new highs
or breaks below the trendline and falls into the base of the wedge, which in
this case is around the 0.66 handle.AUDUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we can
see more clearly the price action inside the wedge. The buyers will likely step
in around the bottom trendline with a defined risk below the 0.6660 level to position
for a rally into the 0.68 handle next. The sellers, on the other hand, will want
to see the price breaking lower to increase the bearish bets into the 0.66
handle.AUDUSD TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, we can
see that we have a minor support zone around the 0.6705 level. If the price gets
there, we can expect the buyers to step in with a defined risk below the
support to position for a rally into the top trendline. The sellers, on the
other hand, will look for a break lower to increase the bearish bets into the bottom
trendline. The red lines define the average daily range for today. UPCOMING CATALYSTSTomorrow we have the Australian monthly inflation data, the US ADP, the US ISM
Services PMI and the US Job Openings data. On Thursday, we get the latest US
Jobless Claims figures. On Friday, we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.

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