The pair will likely break out lower later today as bears target the key support at 0.7125.
Bearish View
- Sell the AUD/USD and set a take-profit at 0.7125.
- Add a stop-loss at 0.7300.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7240 and a take-profit at 0.7325.
- Add a stop-loss at 0.7150.
The AUD/USD pair declined on Monday and Tuesday morning as concerns about the Omicron variant pushed the US dollar higher. The pair is trading at 0.7210, which is about 1.45% below the highest level last week.
Covid Risks in Australia
The Australian economy is seeing escalating risks as the Omicron cases have risen in the past few days. In response, the country’s states have announced several measures to incentivize people to get vaccinated. They have also blocked foreign entry for the unvaccinated.
This explains why the Djokovic crisis made headlines around the world. The tennis star was deported after his appeal to stay in the country failed.
Meanwhile, the AUD/USD pair declined even after the latest economic data from China. According to the National Statistics Bureau (NBS), the Chinese economy had a strong performance in 2021. The economy expanded by 8.1% in 2021 and by 4.0% in the fourth quarter alone.
Additional data showed that the economy was doing well. For example, retail sales rose by 1.7% in December while the unemployment rate rose slightly to 5.1%.
Still, the challenge for the Chinese economy is that the number of Covid-19 cases is rising in some cities. And officials in cities with a population of over 20 million people have announced lockdowns. On Monday, Beijing also announced that tickets will not be sold during the event in a bid to slow the spread.
The country has also announced some stimulus in a bid to supercharge the economy. The government said that fiscal stimulus will be needed in a year that Xi Jinping seeks his third term as the country’s leader. Chinese developments are important for the Australian dollar because China is the biggest buyer of Australian goods.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair has been in a bearish trend in the past few days. The pair has formed a small bearish consolidation pattern. It has also moved slightly below the 25-day moving average.
The pair has formed an ascending channel that is shown in black. It is slightly above the lower side of this channel. Also, is along the 38.2% retracement level.
Therefore, the pair will likely break out lower later today as bears target the key support at 0.7125. This view will be invalidated if the price moves above 0.7250.
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