Talking Points:

– AUD/USD broke above the 0.75 handle in late Asia trading hours

– US Consumer Confidence, Australia CPI to see further volatility for the pair

– GSI is a powerful big data indicator that can help you determine whether short-term trends will continue or reverse

The AUD/USD broke above key resistance at the 0.75 handle with a burst higher in late Asia trading hours, perhaps fueled by short covering above the crucial price point.

Key event risk ahead in the likes of US Consumer Confidence and the Australian CPI figures could amplify volatility for the pair further.

Taking this into consideration, we look to find short term trading opportunities using the Grid Sight Index (GSI) indicator.

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The July US Consumer Confidence figures are in the spotlight for US trading hours. The Survey is expected to slow to 95.5 from the prior 98.0 print. Higher confidence could potentially lead to more spending and higher inflation. In turn, this could make its way to Fed monetary policy considerations.

Perhaps more immediate market moving impact for the pair will come from the Australian Q2 Consumer Prices Index figures, since the data might have significant influence on the next RBA rate decision. Headline inflation is expected to slow to 1.1% in Q2 from the prior 1.3% print.

In their latest Minutes, the RBA signaled what appears to be a “wait and see approach”, opening the door for a cut on the prospect of deteriorating data, with inflation “remaining a concern”. The minutes saw the AUD/USD plunge lower as the market started to price further possibility of a rate cut by the RBA in August.

This makes the upcoming CPI release a major event risk for the pair, which could have a binary response; a beat to expectations seems likely to see the Australian Dollar spiking higher, while a miss could send the currency lower. With that said, risks might be slightly skewed to the upside since the pair seemed to have declined significantly on the possibility for a rate cut.

AUD/USD 3-Min GSI Chart: July 26, 2016

The AUD/USD is trading sideways in the short term after breaking above 0.75, with GSI calculating higher percentage of past movement to the downside. The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns, and can give you a look at the market in a way that’s never been possible before, analyzing millions of historical prices in real time. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

AUD/USD Technical Levels:

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We use volatility measures as a way to better fit our strategy to market conditions. Volatility seems likely to increase with the event risk on the docket. In turn, this could imply that breakout and trend oriented plays might be appropriate ahead.

AUD/USD 30-Min Chart: July 26, 2016

The AUD/USD currently trades near short term support at the 0.7560 level. Other levels of support on a move lower might be the 0.75 handle, 0.7475 and the 0.7450 figure. If price manages to make new lows, the 0.7423 level, 0.74 and 0.7386 could be of significance as well.

Levels of potential resistance on a move higher may be the resistance zone above 0.7536, the 0.7575 level, 0.76 and an area below 0.7650.

When price reaches those levels, short term traders might use the GSI to view how prices reacted in the past given a certain momentum pattern, and see the distribution of historical outcomes in which the price reversed or continued in the same direction. We generally want to see GSI with the historical patterns significantly shifted in one direction, which could potentially be used with a pre-determined bias as well.

A common way to use GSI is to help you fade tops and bottoms, and trade breakouts. That’s why traders may want to use the GSI indicator when price reaches those specific pre-determined levels, and fit a strategy that can offer a proper way to define risk. We studied over 43 million real trades and found that traders who do that were three times more likely to turn a profit. Read more on the “Traits of Successful Traders” research.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 52.0% of FXCM’s traders are long the AUD/USD at the time of writing, after flipping net long last week. Judging by the price action and the SSI swings, it appears traders tried to pick a bottom in the pair.

You can find more info about the DailyFX SSI indicator here

— Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com

To contact Oded Shimoni, e-mail oshimoni@dailyfx.com