AUD/USD Trapped in Lateral Channel, US CPI Could Spark Volatility Later this Week

AUD/USD has lacked strong directional conviction since early March, trading largely sideways, with the exchange rate moving flawlessly within the confines of a lateral channel – a clear sign of consolidation ahead of the next explosive move.

Ranging markets can predictable and easy to trade at times, but the whole premise is to establish a long position when prices of the underlying asset move toward support in anticipation of a rebound or to go short at resistance in preparation for possible a pullback.

Looking at Aussie’s daily chart, range trading strategies would’ve been effective recently as the pair has respected the upper (0.6800) and lower limits (0.6500) of the interval it has been trapped in for more than two months. While the setup could still work, caution is warranted, with volatility seen surging in the coming days due to a high-impact event on the economic calendar: the U.S. CPI report from April.

U.S. inflation data set to be released Wednesday at 8:30 am ET could spark wild FX market swings, so traders should exercise restraint when it comes to trading and, more importantly, pay attention to price action to better predict the near-term market bias.

In terms of possible scenarios, if AUD/USD gets rejected from resistance at 0.6800, the 200-day simple moving average and the rising trendline extended off the October 2022 lows should fend off bears, but if they get taken out decisively, sellers could launch an assault on the 2023 lows near 0.6575.

Alternatively, if price action consolidation resolves to the upside with a clean break of resistance at 0.6800, additional buyers are likely to step in, creating the right conditions for a rally toward 0.6880. On further strength, the focus shifts higher to dynamic resistance at 0.7000.

AUD/USD TECHNICAL CHART

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