The Reserve Bank of Australia’s (RBA) surprise decision to slow the pace of tightening by delivering a smaller 25 bps hike weighed on the aussie. Economists at MUFG Bank expect the AUD/USD pair to challenge the 0.6000 level.
“We continue to believe that risks remain tilted to the downside for commodity currencies in the near-term.”
“The RBA’s policy shift has increased the likelihood that AUD/USD will fall towards the 0.6000 level.”
S&P 500 has resumed its downtrend. Analysts at Société Générale note that the technical outlook denotes prevalence in downward momentum.
“Monthly RSI is now close to the lower limit of its bullish territory (near 40 levels); this band has cushioned the declines since 2010. However, signals of a trend reversal are still not visible in price action.”
“Short-term resistance is located at 3860/3900, the 38.2% retracement from August. Failure to reclaim 3900 can lead to continuation in decline.”
“Next potential supports are at projections of 3500/3460 and February 2020 levels of 3393.”
The AUD/USD pair continues losing ground through the first half of the European session on Friday and drops to the 0.6565 area or its lowest level since May 2020.
The US dollar catches fresh bids on the last day of the week and hits a new 20-year peak, which turns out to be a key factor exerting downward pressure on the AUD/USD pair. The Federal Reserve struck a more hawkish tone on Wednesday and signalled that it will undertake more aggressive rate increases to cap inflation. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.
In fact, the yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. Meanwhile, investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, in turn, tempers investors' appetite for riskier assets and is further underpinning demand for the traditional safe-haven buck.
Apart from this, economic headwinds stemming from China's zero-covid policy and the risk of a further escalation in the Russia-Ukraine conflict, have been fueling recession fears. This is seen as another factor contributing to driving flows away from the risk-sensitive aussie. With oscillators still far from being in the oversold territory, the fundamental backdrop supports prospects for an extension of the depreciating move for the AUD/USD pair.
Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and Fed Chair Jerome Powell's speech at an event in Washington, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities heading into the weekend.
Iran's Foreign Minister Hossein Amirabdollahian said on Wednesday that Tehran is carefully reviewing the EU-drafted text for the revival of the 2015 nuclear pact, as reported by Reuters.
"We need stronger guarantees from the other party to have a sustainable deal," Amirabdollahian added. "The (U.N.) agency should close its politically-motivated probes."
Crude oil prices showed no immediate reaction to these comments. As of writing, the barrel of West Texas Intermediate was trading at $89.10, where it was down 3.5% on a daily basis.
GBP/USD has managed to recover above 1.1800 on Friday ahead of FOMC Chairman Jerome Powell’s remarks at the Jackson Hole Symposium. The pair will reveal a buildup of bullish momentum on a break past 1.1870, FXStreet’s Eren Sengezer reports.
“In case the chairman's comments suggest that the bank could opt for another 75 basis points in September, GBP/USD could turn south amid a stronger dollar. On the other hand, an optimistic tone inflation outlook should hurt the greenback and help GBP/USD gain traction.”
On the upside, cable faces key resistance at 1.1870, where the Fibonacci 23.6% retracement level of the latest downtrend is located. Above that level, the 50-period SMA forms interim resistance at 1.1900 ahead of 1.1940 (Fibonacci 38.2% retracement).”
“1.1800 (psychological level, 20-period SMA) aligns as initial support before 1.1750 (static level, end-point of the downtrend) and 1.1720 (Aug. 23 low).”
DXY keeps the rally well and sound and trades at shouting distance from the YTD highs near 109.30 on Tuesday.
The continuation of the upside momentum looks increasingly likely in the very near term. That said, beyond the 2022 high at 109.29 (July 14) the index could challenge the September 2002 peak at 109.77 prior to the round level at 110.00.
In the meantime, while above the 6-month support line near 105.10, the index is expected to keep the short-term positive stance.
Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.49.
DXY leaves behind Tuesday’s strong advance and sparked a corrective downside soon after hitting new 3-day peaks in the mid-106.00s on Tuesday.
Tuesday’s bounce did not clear any up barrier of note and thus leaves the index vulnerable to further weakness in the very near term at least. On this, the dollar faces the tangible chance to slip back to the multi-week lows in the 105.00 region (August 2) in the short term. This initial area of contention remains propped up by the proximity of the 55-day SMA, today at 104.84.
Furthermore, the broader bullish view in the dollar remains in place while above the 200-day SMA at 99.62.
The GBP/USD pair attracted some dip-buying near the 1.1960 area on Monday and shot to a nearly three-week peak during the mid-European session. The pair was last seen trading around the 1.2065-1.2070 region, up over 0.50% for the day.
Friday's better-than-expected flash UK PMI prints reaffirmed market bets for a 50 bps rate hike by the Bank of England in August and continued acting as a tailwind for the British pound. On the other hand, a positive turnaround in the global risk sentiment - as depicted by a strong intraday rally in the equity markets - weighed on the safe-haven US dollar. In fact, the USD Index languished near its lowest level since July 5 touched on Friday, which, in turn, was seen as another factor that provided a goodish lift to the GBP/USD pair.
The greenback, in terms of the US Dollar Index (DXY), leaves behind Thursday’s pullback and regains the area beyond 107.00 the figure at the end of the week.
The index extends the erratic performance so far this week and advances north of the 107.00 yardstick, as market participants seen to have already digested the start of the hiking cycle by the ECB on Thursday.
Contrasting with the upbeat tone in the buck, yields in the US cash markets continue their march south and already navigate in multi-session lows across the curve ahead of the key FOMC event due on July 27.
In the NA session, the advanced Manufacturing and Services PMIs for the month of July will be the only releases of note later in the NA session.
The index looks side-lined in the 107.00 neighbourhood amidst a broad-based range bound theme so far this week.
In the meantime, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.
Key events in the US this week: Flash PMIs (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is up 0.49% at 107.12 and faces next contention at 106.38 (weekly low July 20) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).
1️⃣ The main news last weekend
- Biden announced the withdrawal of previous threats on infrastructure deals.
- Fed Rosengren hinted that they expect to raise rates by the end of 2022
- US core PCE data hit a new high in May.
- US Secretary of State Blinken: There are still serious differences in the Iran nuclear deal.
- Goldman Sachs: Crude oil supply will be very scarce.
- EU extends sanctions against Russia, Russia: will take countermeasures.
UK Health Secretary Matt Hancock resigns over scandal.
2️⃣ Notable economic events and data today
- Fed Williams attended the panel discussion.
- The US Dallas Federal Reserve Business Activity Index for June will be released.
Subscribe to #MoneyLifeResearch #GoldSignals #BestGoldSignals The Best Gold Trading Tips
