- Traders will be mostly tuned in for the US CPI data from here.
- AUD net short positioning continues to decline, (CFTC Commitment of Traders Report).
- AUD/USD through the descending prior resistance turns support and below the 10-D SMA at 0.7393. 0.7300 is key.
AUD/USD is currently trading at 0.7375 having made a high of 0.7437 and a low of 0.7373, weighed by the US raising the stakes in the trade dispute with China and broad based dollar strength. (The pair was toppled at the 0.7483 double highs on 9th July and again at 0.7473 on fresh trade war headlines yesterday).
AUD/USD was offered right until 0.7383 in late London today before picking up a bid until the 21-hourly SMA at 0.7412 where offers sent the pair back to 0.7389 on broad dollar strength into the NY session. From here, it will be key to monitor Chinese events/noise while Aussie beaves as a liquid proxy for Chinese related headlines.
Key US CPI coming up
Meanwhile, traders will be mostly tuned in for the US CPI data from here and its seems there is already some positioning going through ahead of the event as investors are expecting a strong 2.3% y/y and an inline 0.2% m/m. Analysts at Nomura look for a trend-like 0.202% m-o-m increase in core CPI inflation but a 2.272% from 2.237%, previously:
"On positives, we expect airline fares to have rebounded in the month after two consecutive m-o-m declines, give the lagged impact of higher jet fuel prices. Moreover, while structural factors point to a continued downtrend in used vehicle prices, we think this downward pressure may have paused in June. On negatives, the prices of lodging away from home likely fell sharply, after three consecutive month-on month increases. This measure displays a high degree of mean reversion and could swing back from gains in previous months. In addition, prices of prescription drugs jumped sharply in May. We think this index likely fell in June. For non-core components, we expect an above-average 0.28% m-o-m increase in food prices, driven by a pickup in food at home prices, while food away from home prices likely increased at a trend-like pace. Energy prices likely increased at a more modest 0.2% m-o-m pace than in April (+1.4%) and May (+0.9%), as retail gasoline prices leveled out. Altogether, we expect headline CPI to increase to 0.212% m-o-m (2.942% y-o-y). Our forecast for CPI NSA is 252.161."
CFTC Commitment of Traders Report
In terms of positioning, analysts at Rabobank noted that AUD net short positioning continues to decline as AUD/USD rallied off the 18mth low observed at the start of July. "The 50dma at the 0.75 handle is now in site but global trade tensions and steady monetary policy make it hard to become too bullish of AUD."
AUD/USD Technical Analysis
AUD/USD has turned south and back into the channel, through the descending prior resistance turns support and below the 10-D SMA at 0.7393. 0.7300 is key. However, should China stumble again, or should the trade war spat angst start to become a more dominant theme, a complete unwind of the two-year year-long reflation trade would put 0.7200. Beyond there, we have the 0.7140 double bottom lows on a weekly basis.
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