The recent risk-off market environment has pushed AUD/USD down from the top of the long-term range around 1.0600 towards the bottom. 

Another test of the 1.0200 major psychological level could be in the cards for this week.

This level could hold as support if Australia’s quarterly CPI figure meets or beats expectations. The report is slated to show a 0.7% uptick, higher than the previous period’s 0.2% increase in price levels. On top of that, negative expectations for U.S. Q1 2013 GDP could keep the dollar rallies at bay.

Stochastic is already in the oversold zone, suggesting a potential bounce later on. In fact, a shallow bullish divergence seems to be forming as the previous low was matched with a higher low by the oscillator.

Since this is based on the daily time frame, a wide stop of 100 to 150 pips would work for a swing trade. Aiming for the middle of the range around 1.0400 would give a good reward to risk ratio of around 2:1 while going for the top of the range at 1.0600 would yield a much higher R:R.

By Kate Curtis from Trader’s Way