Fundamental Overview
The USD has been rallying steadily against most major currencies in the recent couple of weeks, although the catalyst behind the move has been unclear. A good argument has been that most of the moves we’ve been seeing were driven by deleveraging from strengthening Yen.
Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could have been the reason indeed. It will be interesting to see how things evolve in the next days now that the BoJ decision is in the rear-view mirror and if this correlation fades.
From the monetary policy perspective, we had the FOMC rate decision yesterday and as expected it was a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even close the door for “several” rate cuts before the end of the year. The market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
The data continues to suggest that the US economy remains resilient with inflation slowly falling back to target. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment as the Fed is going to cut into resilient growth.
The AUD, on the other hand, has been supported against the US Dollar in the past months mainly because of the risk-on sentiment, although the recent events with the Yen boosted the US Dollar against most major currencies. The Australian Dollar was also helped by the hawkish expectations for the RBA given the sticky inflation data.
Those hawkish expectations were finally put to rest yesterday as the Australian Q2 CPI report came in on the softer side. That should give the RBA more confidence to hold rates steady.
AUDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that AUDUSD after breaking below the key 0.66 support zone, extended the drop towards the next key level at 0.6464. It looks like we got a final spike lower on a softer than expected Australian CPI report and the pair is now bottoming out.
From a risk management perspective, the sellers will have a much better risk to reward setup around the 0.66 resistance where we can also find the confluence of the 38.2% Fibonacci retracement level of the entire selloff. The buyers, on the other hand, will want to see the price breaking above the resistance to regain control and increase the bullish bets into a new cycle high.
AUDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we are having some consolidation around the 0.65 handle. There’s not much else to glean from this timeframe as the price is trading right in the middle of the two key levels, so we need to zoom in to see some more details.
AUDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have an interesting support zone around the 0.6510 level where the price reacted from several times in the past days. This is where we can expect the buyers to step in with a defined risk below the support to position for a rally into the 0.66 resistance. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 0.6464 level. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Tomorrow, we conclude the week with the US NFP report.
