No luck with this week’s short-term idea on AUD/USD as I decided to close early after a not-so-dovish AU CPI read and the FOMC monetary policy statement.
Short-term Range Play on AUD/USD
On Tuesday, I decided to short the top of the range in AUD/USD ahead of a potentially weak Australian CPI update. Australian PMI data were showing prices under pressure, and that’s sorta what we got as the quarterly CPI came in at 0.5% vs. the 0.6% previous quarter read. While lower, the number was inline with expectations and not-so-bad compared to what the sentiment data was hinting at. So, the reaction in AUD/USD after the event was pretty muted, trading in roughly a 10 – 20 pip range for the rest of the session.
I decided to keep the trade on in expectations that the FOMC would cut rates (already priced into the USD), but signal that future rate cuts were not a given. I thought this would be short-term dollar bullish, and that’s exactly what happened: the Fed cut the interest rate target by 0.25% and dropped the language that the market generally took as the pledge to “act as appropriate to sustain the expansion” was no longer in the statement. The USD did rally briefly, but sentiment quickly shifted once again as Powell signaled that raising rates has been pushed way into the back of their minds as inflation continues to be muted. After that and the spike lower in the Greenback, I decided to close the trade manually (0.6894) for a very small loss relative to taken risk.
Total: -34 pips/ -0.17% loss on 0.50% risk taken
Overall, it was still a good setup in my mind, it was just the Aussie data didn’t come out as expected given the leading indicators, and the Fed killed the dollar’s chances for a rally by basically nixing the idea of seeing a rate hike any time soon. Looking forward, I’m still longer-term biased in favor of the USD vs. AUD from an economic standpoint, but geopolitical drivers are likely to remain the main catalysts for now. No new ideas yet in the works, but they may be coming soon.
Stay tuned for that and for new ideas coming next week and until then, thanks for checking out my blog…have a great weekend!
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