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The consolidation in AUD/USD is a setup to watch with the latest monetary policy statement from the Reserve Bank of Australia coming very soon.

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Fresh Market Headlines & Economic Data:

Stocks rise to start February, rebounding from a steep sell-off amid retail trading frenzy

Retail surge drives silver to 8-year high

CBO sees rapid growth recovery, labor force returning to pre-pandemic level by 2022

ISM Manufacturing PMI at 58.7 in January vs. 60.5 in December

Housing drives jump in U.S. construction in December

Canadian manufacturing growth softens to six-month low, but remains solid

Final read on Eurozone manufacturing PMI for January settles at 54.8 vs. 55.2 in December

Upturn in German manufacturing continues in January, despite
growing risks from supply chain disruption

December 2020 Euro area unemployment at 8.3%; EU at 7.5%

U.K. mortgage approvals post best year since 2007 on tax cut

UK Manufacturing upturn constrained by COVID-19
restrictions and supply-chain disruptions

Upcoming Potential Catalysts on the Economic Calendar

Fed Bostic speech at 7:00 pm GMT
Fed Rosengren speech at 8:10 pm GMT
RBA Interest rate decision at 3:30 am GMT

What to Watch: AUD/USD

AUD/USD 1-Hour Forex Chart
AUD/USD 1-Hour Forex Chart

On the one hour chart of AUD/USD, we can see the pair consolidating between the 0.7600 and 0.7700 handles, tightening up around the 0.7640 handle.

With the market coiling up like a spring, it makes sense to watch out for a consolidation break play, especially considering that we have a top tier event ahead for the Aussie that could provide the volatility needed to see this pattern break.

Right around the corner (Feb 2, 3:30 am GMT), we’ll get the latest monetary policy statement from the Reserve Bank of Australia. Expectations are for the RBA to hold off on any new policy moves, and maintain its optimistic growth forecast for 2021.

If they upgrade their growth outlook, that could draw in fundamental buyers for the Aussie, but the bigger surprise may be a turn lower in their expectations, which could bring a sharp sell off reaction in AUD against the majors.

So, we’re looking for a statement outside of expectations, and if that plays out, we’ll then watch AUD/USD to see if it breaks the falling ‘highs’ pattern or the rising ‘lows’ pattern for a short-term potential breakout setup.

On a longer-term swing timeframe, the U.S. dollar could be in the midst of reversing the extremely negative sentiment that has put pressure on it over the past year. A downside break may draw in swing or longer-term players looking to play the idea of a USD reversal.

Of course, the longer-term trend has been to the upside for AUD/USD, so an upside break would likely draw in both fundie and technical buyers if the RBA remained optimistic, but it’s not likely we’d see a strong move to the upside unless the RBA were to surprise traders with hints of a rate hike sooner than the previously set expectation of three years away.