This week, the Federal Reserve appeared slightly more hawkish than expected. They decided to maintain interest rates at 5.00-5.25% without any changes, but they increased the projected terminal rate in the Dot Plot by 50 basis points. The FOMC chose to pause and gather more economic data before making a decision on a potential rate hike in July. Their caution is supported by the weaker details found in the latest NFP report, the ISM Services PMI report, and the CPI report, although core inflation remains sticky at high levels.
Fed Chair Powell mentioned that the July meeting is “live” but refrained from making any definite commitments. When the Dot Plot was released, the market quickly bid the US Dollar, but the value returned to its original levels once Powell's press conference began. Overall, this demonstrates that the Federal Reserve is prepared to take further action to lower inflation, but their decisions rely on the economic data. Yesterday, the number of US Jobless Claims once again significantly missed expectations, indicating a potential weakening of the labour market.
AUDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that once the AUDUSD pair broke out of the key resistance at 0.6781 it took off helped by the weaker US Jobless Claims yesterday. The price may be overstretched though as depicted by the distance from the blue 8 moving average. In such instances, we can generally see some consolidation or a pullback to the moving average before the next move.
AUDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see how the price has been neatly trending upwards within a rising channel with the red 21 moving average acting as dynamic support. Now that the price has tapped into the upper bound of the channel, we might expect a pullback unless today’s US data misses expectations.
AUDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from a risk management perspective, the buyers would have a better risk to reward setup if they waited for the price to pull back into the lower bound of the channel where we can find confluence of a previous swing high support, the 50% Fibonacci retracement level, the 4-hour 21 moving average and the daily 8 moving average. The sellers, on the other hand, may either try to short at these levels into the lower bound of the channel or wait for the price to break below the 0.6781 resistance turned support to extend an eventual selloff into the 0.6563 level.
Today, the market will be paying close attention to the University of Michigan consumer sentiment report. Last time, the market had a strong reaction to it because long-term expectations for inflation showed a significant increase, going up from 3.0% to 3.2%. However, later on, that number was adjusted to 3.1%. Therefore, if we witness another rise in long-term inflation expectations, it's likely that the value of the dollar will go up. Conversely, if the data doesn't meet the forecasts, we can expect the dollar to decline.