Markets to watch: Australia's CPI and China's PMI in focus as AUD/USD gains support
The AUD/USD is poised to recover losses as an improved risk environment and weaker US dollar provide support. Technical indicators suggest bullish momentum, with Australia's CPI and China's PMI data in focus for further direction.
US dollar index: is a corrective move lower due?
Near-term bearish divergence on its daily relative strength index (RSI) suggests a possible corrective move lower. Much of the "Trump trade" and a less dovish Federal Reserve (Fed) rate outlook may already be priced in, leaving room for surprises. Weaker year-end seasonality for the US dollar, combined with aggregate US dollar positioning versus G10 currencies at a near five-month high, could prompt profit-taking. Any retracement may find near-term support at 10591, where the 23.6% Fibonacci retracement level stands.
Key levels:
- R2: 10900
- R1: 10780
- S1: 10591
- S2: 10475
US dollar index daily chart
Brent crude: near-term stabilisation amid geopolitical tensions
Oil prices have rebounded off the $7040 level, a crucial horizontal support that has held firm on three recent retests. Geopolitical risks between Ukraine and Russia have escalated as both sides vie for leverage ahead of potential negotiations, with tensions likely to persist into year-end. Technicals show Brent crude’s daily RSI nearing a one-month high and holding above its mid-line. However, short-term upside may encounter resistance at a downward trendline.
Key levels:
- R2: 8000
- R1: 7621
- S1: 7040
- S2: 6858
Brent crude daily chart
Australia 200: facing upper channel trendline resistance
The ASX 200 has been trading within a rising channel pattern since the start of the year, recently finding support from its Ichimoku Cloud and validating its broader upward trend. However, the index is now testing resistance at its upper channel trendline at 8472, which could present short-term challenges. A bearish shooting star candle on the four-hour chart adds to the likelihood of a near-term pullback. Additionally, weaker gold prices at the start of the week may act as a minor headwind.
Key levels:
- R2: 8566
- R1: 8472
- S1: 8314
- S2: 8166
ASX 200 daily chart
Russell 2000: testing multi-year highs
The corrective move in mid-November this year proved to be short-lived for the Russell 2000 index, which is now back to retest its previous high at the 2,447 level. A recent bounce in its daily RSI off the mid-line offers validation for the broader upward bias, while seasonality suggests that small-caps tend to outperform into year end. With potential rotation towards the laggards, the relative lower valuation compared to other US indices may stand out as well, while still-neutral market breadth suggests that bullish sentiments are not overblown just yet.
Key levels:
- R2: 2500
- R1: 2447
- S1: 2365
- S2: 2283
Russell 2000 daily chart
AUD/USD: upward trendline as key support
An improved risk environment this week, coupled with a softer US dollar, may provide the Australian dollar against the US dollar (AUD/USD) with room to recover recent losses. Technicals reveal a near-term bullish divergence on the daily RSI, while a bounce off upward trendline support indicates a potential formation of a new higher low. Expectations for an uptick in Australia’s weighted consumer price index (CPI) to 2.3% from 2.1% prior could reinforce the view that interest rates will remain on hold for the near term. Upside surprises in China’s Purchasing Managers' Index (PMI) may also bolster the AUD/USD.
Key levels
- R2: 0.668
- R1: 0.656
- S1: 0.645
- S2: 0.637
AUD/USD daily chart
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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