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Abstract: U.S. headline CPI slowed to 4.9% in April, down from an expected 5.0%. Core CPI slowed from 5.6% to 5.5%, which was in line with expectations.

Fundamentals

U.S. Bureau of Labor Statistics reported that consumer prices rose 4.9% in April, the first time in two years that the annual inflation rate fell below 5%. On a monthly basis, inflation rose by 0.4%, up from 0.1% in March. Nonetheless, core inflation, excluding volatile food and energy prices, rose 5.5% YoY, which meets market expectations.

The latest data show that earlier market worries about the April inflation report proved unfounded. One price measure in the service category now shows a significant slowdown.

The inflation target announced by the Federal Reserve to bring the economy back to 2% is still working. Although Wednesday's report shows progress, it may take months to achieve that goal.

Given the still-strong April jobs report, the Federal Reserve will be pleased with today's inflation report and will strengthen its policy preference to suspend rate hikes.

This is true even though the Federal Reserve has raised its main interest rate to its highest level in 16 years at 10 consecutive meetings. By raising interest rates, the Federal Reserve hopes to raise the cost of borrowing and investing, thus curbing demand for goods and services. But given the current size of the U.S. economy, higher interest rates will take more time to bring inflation down further.

At last week's press conference, U.S. Federal Reserve Chairman Powell did not explicitly rule out further interest rate hikes for the rest of the year. Powell also played down expectations of a rate cut this year, saying it was "out of our range of expectations."

At this point, it is too early to say whether interest rates will rise again, especially given the uncertainty over the recent tightening of credit standards and its potential knock-on effects on the real economy. But one thing is certain. Current market pricing suggests interest rate cuts could start as early as September, which seems out of sync with recent economic data streams. Any outward push to cut interest rates and set prices should help push up yields and effectively take on some heavy work for the Federal Reserve.

Technical Analysis

The AUDUSD traded in a key range ahead of the U.S. CPI data release in April, challenging the resistance trend line for the third day in a row, which linked to the February 24 high of 0.6807. As the double bottom pattern becomes more apparent, it is likely to continue upward in the future.

Nevertheless, the short-term bullish structure can only be extended if the price clearly moves upward beyond the 0.6825 level. If the AUDUSD recovers its upward momentum above the 0.6825 level, it will indicate that the prolonged fluctuation interval has been broken, and the upward trend will continue thereafter.

Having said that, we are not optimistic about the continued upward movement of the AUDUSD, but instead, it would maintain the range fluctuation. As the upward momentum has weakened, this, combined with the still overbought situation, suggests that the AUDUSD is unlikely to rise further. We expect the AUDUSD to continue to consolidate between 0.6563 and 0.6825 for some time.

Overall, the AUDUSD appears to be testing a range that determines success or failure. A sustained break of key resistance at 0.6825 would trigger a WBC effect, while a break below key support at 0.6563 could trigger selling pressure again. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6780

Target price: 0.6620

Stop loss: 0.6850

Deadline: 2022-05-24 23:55:00

Support: 0.6741, 0.6691, 0.6640

Resistance: 0.6819, 0.6837, 0.6848