Background

Next Wednesday’s CPI number will be the decider for AUDUSD. Analysts are expecting a quarterly number of 0.4%–0.5% which would see the annual rate dropping to 1.1%, well under the Reserve Bank of Australia’s target of 2-3%.

As such, a 25 basis point rate cut to 1.5% at the bank’s next policy review on August 2 looks to be a strong possibility. However, that’s already priced in and the CPI number would have to lowball the expectation to see AUDUSD sell off much more from here. More on the RBA’s predicament here: RBA may move goalposts on inflation target.

On the other side of the cross, the probability of a rate rise by the US Federal Reserve by year-end continues to creep up: now a bit above 50:50.

Management and risk description

From an Elliott Wave and classical charting perspectives, the Ozzy has good short-term recovery potential (see my hourly and daily charts below) and while holding 0.7480/0.7450 support, looking for rally back toward the 0.7560 – 0.7600 area.

Parameters

Entry: buying Ozzie at market 0.7493.

Stop: 0.7448 until 0.7515 resistance is cleared.

Target: 0.7568.

Time horizon: today, a day or two for target to be m