AUD/USD keeps the downtrend despite iron ore rally

• AUD/USD 2-month long downtrend line stays intact.
• Iron ore regains bullish tone.

Despite the iron ore rally and Fed's waning confidence on inflation, the AUD/USD failed to take out the falling trend line coming from the Sep. 20 high and Oct. 20 high.

As of writing, the currency pair is trading flat-lined around 0.7614 levels. While the pair may have found a bottom at 0.7532 (Nov. 21 low), still a break above the trend line has been elusive. This is slightly surprising, given the growing calls for the Fed to slow down on the rate hikes on account of weak inflation.

Further, as per the Metal Bulletin, seaborne iron ore prices rose on Friday and are up more than 16% for the month so far. Iron ore is one of Australia's top exports, hence rising ore prices usually boost AUD.

Focus on Fed's 2018 rate hike path

Though US officials see an interest-rate increase in the near term despite divisions over the policy path given tepid inflation, still speculation is on the rise that Fed would slow down considerably in 2018. The bets that Fed would hold off on rate hikes next year would rise if the Fed's preferred measure of inflation - core PCE scheduled for release this week prints below the estimated figure of 1.4 percent. In such a case, the AUD/USD may see a convincing break above the trend line hurdle. Also, the fate of the USD this week depends on the tax reform talk and Fed speak.

AUD/USD Technical Levels

Jim Langlands from FX Charts details the technical picture as follows-

"With the short term momentum indicators looking flat we may be in for more of the same today although the daily charts still look positive and a test of the H/S neckline formation at 0.7660 would not surprise at some stage, which ties in with the 13 Nov high of 0.7665 and some minor Fibo resistance. Beyond this would then allow a run towards 0.7675/80 and possibly 0.7695/0.7700.

The downside will again find minor support at 0.7590/0.7605 and then at 0.7565 and 0.7550 ahead of the stronger 0.7530/35, area, which will continue to be strong, but below which would target Fibo support at around 0.7515. A break of this would then look towards 0.7485 and 0.7460/70 (Rising trend support) albeit this is some way off."