Euro area inflation data and Powell speech eyed

Despite a soft start for risk assets to the week, procyclical currencies staged a moderate rally against their US counterpart on Tuesday. Underpinned amid hopes of China reopening Covid lockdowns on the back of progress in their vaccination program, the risk-sensitive AUD/USD attempted to secure position north of the $0.67 psychological figure. Note that China remains Australia’s largest trading partner, therefore the Australian dollar’s price movement is closely tied to China’s economy. For a technical view, check out the AUD/USD outlook below.

US consumer confidence was also released in the early hours of US trading, showing consumer confidence slipped for a second consecutive month in November, dipping to 100.2 from October’s 102.2 print (marginally beating economists’ estimates), according to the Conference Board.

"Consumer confidence declined again in November, most likely prompted by the recent rise in gas prices," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. "The Present Situation Index moderated further and continues to suggest the economy has lost momentum as the year winds down. Consumers' expectations regarding the short-term outlook remained gloomy. Indeed, the Expectations Index is below a reading of 80, which suggests the likelihood of a recession remains elevated."

"Inflation expectations increased to their highest level since July, with both gas and food prices as the main culprits. Intentions to purchase homes, automobiles, and big-ticket appliances all cooled. The combination of inflation and interest rate hikes will continue to pose challenges to confidence and economic growth into early 2023."

What’s ahead today?

Euro area inflation is a key watch, following the lower-than-expected annual change in consumer prices for Spain and Germany yesterday. Economists project a slowing in the annual inflation rate for the Euro area to 10.4% after October’s downwardly revised 10.6% print. Importantly, the forecast range sits between 11.0% and 9.8%.

US Chair Jerome Powell’s speech is another event to monitor, expected during the US morning session (around 6:00 pm GMT). The topic of his speech is centred on the economic outlook, inflation and the labour market. A number of Fed members remain hawkish ahead of Powell’s speech, with many desks believing Powell will echo a similar tone.

AUD/USD eyeing $0.66 as support?

Out of the weekly timeframe, buyers and sellers are seen battling for position off resistance-turned support from $0.6673. This follows an impressive pullback from just north of demand coming in at $0.5975-0.6166. While the technical long-term trend favours sellers (bearish since the mid-February peak at $0.8007), scope to print further outperformance remains on the table until resistance puts in an appearance at $0.7022.

Out of the daily timeframe, price shook hands with the underside of supply from $0.6857-0.6776 in mid-November. As you can see, the fight is now between the aforementioned supply and the noted weekly support (with daily support calling for attention below at $0.6536). Directly beyond the supply zone is a pattern profit objective for an inverted head and shoulders at $0.6875 that was formed off daily support from $0.6212 (just above weekly demand) in October. In terms of trend structure on the daily scale, early signs of an uptrend are visible: a series of higher highs and higher lows.

Across the page on the H1 timeframe, the $0.67 psychological figure was recently cleared to the downside, perhaps paving the way back to $0.66. Of technical relevance here is a 100% projection and a 1.27% Fibonacci extension at $0.6611; this represents an AB=CD support, the simplest harmonic formation.

Going on the above chart studies, sellers are unlikely to remain in control beneath $0.67 on the H1. This is largely due to the support plotted on the weekly chart at $0.6673 and the early uptrend emerging on the daily timeframe. Consequently, buyers are expected to remain in command, zeroing in on the upper range of daily supply from $0.6857-0.6776 and perhaps taking aim at the daily inverted H&S pattern’s profit objective at $0.6875. This would also imply H1 price reclaiming position above $0.67.

If sellers do maintain short-term control, on the other hand, buyers may step in from $0.66, bolstered by the H1 AB=CD formation at $0.6611.

Charts: TradingView

Dow Jones Industrial Average: RSI bearish divergence

Leaving the underside of Quasimodo support-turned resistance at 34,555 unchallenged, sellers stepped in on Monday, with Tuesday seeing little follow-through downside. Upside momentum showed signs of levelling off at the beginning of the week, according to the relative strength index (RSI) which displayed negative divergence within overbought space. As evident from the indicator, the value trades just above the 60.00 level.

Technically, further selling in this market is possible on the price chart until the unit greet support from 33,275, closely shadowed by a trendline resistance-turned support, taken from the high 36,952.

Daily Timeframe