On the daily chart below, we can see that after the big USD appreciation in May caused by strong economic data and a hawkish repricing in interest rates expectations, the AUDUSD pair broke out of the 3-month long range. At the start of the week, it looked like the price pulled back to retest the broken support turned resistance and then continued lower with the 0.6168 as the ultimate target.
Unfortunately, some Fed members talked about a pause in June to gather more data before deciding on a further increase. What we’ve seen in the aftermath is a fast unwinding of hawkish expectations that were also supported by soft data yesterday in the ISM Manufacturing PMI and Unit Labour Cost reports. The price is now approaching the red 21 moving average and we are likely to find sellers there targeting another breakout and eventually the 0.6168 low.
AUDUSD Technical Analysis
On the 4 hour chart below, we can see that AUDUSD has broken above the downward trendline yesterday and the bullish momentum skyrocketed as the buyers jumped aggressively on the bullish wave. This rally has overstretched a bit though as depicted by the price distance from the blue 8 moving average .
Generally, in such cases, the price consolidates or pulls back before the next move. We can also notice that the last low into the 0.6450 level was diverging with the MACD suggesting that the bearish momentum was weakening. Divergences generally signal a pullback or a reversal incoming.
On the 1 hour chart below, we can see that the sellers don’t have strong resistance levels to lean on at the moment as the only good one comes at the 0.6680 level where we can find the confluence of the 61.8% Fibonacci retracement level and the previous swing resistance.
What the sellers may want to see is a break below the 0.6563 support that would switch the bullish short-term structure into a bearish one, and then pile in to target the 0.6460 low first and the 0.6168 level next. The buyers, on the other hand, will have the zone between the 0.6563 and 0.6580 as support for another push to the upside into the 0.6680 resistance.
Today, all eyes will be on the US Non-Farm Payrolls (NFP) report, with the potential for various outcomes:
- If the data exceeds expectations and is accompanied by higher-than-anticipated average hourly earnings, it is likely to raise the probability of a rate hike in June and possibly even indicate the likelihood of a rate hike in July. This particular scenario may raise concerns within the market regarding a potential spiral of wages and prices.
- Conversely, if the data is positive but falls short of expectations in terms of average hourly earnings, it is expected to further weaken the USD, as it would not significantly impact rate expectations. In this case, the market will eagerly await the Consumer Price Index (CPI) report scheduled for next week.
- If the data disappoints across all aspects, it will be seen as negative news and could potentially trigger risk aversion in the markets, leading to an increased demand for the USD. However, considering recent comments made by Federal Reserve officials, we might observe a weakening of the USD due to diminished expectations regarding future interest rate hikes.
