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  • AUD/USD is defying gravity and will come crashing down should the dollar make a break above the key  96.240 Fibonacci level, a 76.4  percent  retrace of the 96.991 to 93.808.
  • AUD/USD can target the 50% fibo at 0.7199 on a break of S3 at 0.7132. Or, a break of  0.7042 4th Oct lows,  bears can look to  target the Feb’s 2016 low at 0.6973 once again.

The DXY is on tenterhooks sold off at the top of the Bollinger bands and now testing the daily  support line – A break there and a subsequent follow-through below 10th Aug 2018 bull candle and June-August channel support will leave the 21st Sep lows and channel support down at 93.70s exposed making for a pro-risk environment in a relief for the EM-FX and commodity complex for which the Aussie trades as a proxy.  

Everything this week hangs in the balance of not just the usual performance in global equity  prices, but US  CPI as the key scheduled data event. Should the dollar fail to  rally  post the event and through the aforementioned  Fibo and Bollinger band resistance area, decoupled from higher US yields, then there is plenty of upsides  and risk-reward ratios in the Antipodeans and Canadian dollar, (AUD and CAD are included in the basket of 6 DXY currencies – NZD follows on the coattails of the Aussie).

US CPI preview

Analysts at Nomura noted the key US CPI this week offered a preview, (Key event for the week: US CPI – Nomura):

“CPI (Thursday): We forecast 0.2% (0.244%) m-o-m  increase in core CPI inflation for September following a 0.082% advance in August. On a 12-month change basis, our forecast would be equivalent to 2.304% advance in September, up slightly from a 2.190% pace in August. The relative softness in core CPI inflation in August was mostly concentrated certain volatile core goods prices.”

Eyes on USD/CNH

Elsewhere, and as analysts at Rabobank explained, “if you want just one other key market to look at as a crystallisation of all this, keep an eye on USD/CNH – which the US Treasury say they are also doing with concern. Offshore trading crashed through the psychological 6.90 barrier yesterday even after we saw CNH HIBOR rates rising to 7% and a firm PBOC promise this would not happen. China has very little runway left as it keeps trying to prop up a sagging economy before we hit another 7 level – and when we do, expect every mom and dad currency holder in China, and every hedge fund globally, to suddenly take interest. Not that it’s easy to trade that inevitability, of course, and so  AUD  might again have to be an understudy”.

AUD/USD levels

Meanwhile, RSI was diverging from the broad-based bear trend and AUD/USD is now riding the weakness of the dollar on Tuesday. The pair has reached back to test the channel  highs that are just a touch below 0.71 the figure and which correlates with R1 at 0.7089. R2 is located at 0.7108 and R3 at 0.7132, easily within striking distance. It is 0.7199 that the bulls want to get their teeth stuck into as being the 50% fib of the 10th Sep Doji lows to 20th Sep spinning top highs. However, on a cap at R1 or even R3, and a subsequent correction back below the 0.7042 4th Oct lows,  bears can look to  target the Feb’s 2016 low at 0.6973 once again.