Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has gone back and forth during the last couple of days and as we currently stand, it looks like the 0.6550 level remains a bit of a magnet for price. Quite frankly, the market is taking a break after a severe beating over the last couple of trading sessions, going back really about two and a half weeks where we plunged from the 0.6790 region. At this point, we have to question whether or not the market is able to continue this type of downward pressure, or will we get a relief rally?

As things stand right now, it looks like we’re just content to go sideways. We could be forming a little bit of a basing pattern, but we would need to see the 0.6575 level taken to the upside to even start to think about that. Furthermore, we have a Federal Reserve meeting on Wednesday, which will probably be the catalyst, regardless of which direction we go.

Once we get a read on the Federal Reserve monetary policy, that will affect the dollar, and of course the Australian dollar will react in kind against that greenback. So, we’ll just have to wait and see. I suspect we probably have another 24 hours or so of this sideways action. After that, I would hope that things become much clearer. This is a market that also has a lot of input from risk appetite, so make sure you understand that as well.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

More From FXEMPIRE:

• The EUR/USD exchange rate is expected to remain under moderate pressure in the coming days, with focus on Eurozone inflation figures ahead of the Fed decision and US wage figures.
• According to reliable trading platforms, the EUR/USD rate has retreated from its July highs of 1.0948 and has now recorded three consecutive weeks of declines, consistent with a soft tone.
• Weakness is likely to be limited, with selling interspersed with upside days.

As for the outlook for the currency pair, we look for a gentle pullback to the 50-day moving average at 1.0811 in the coming days. Also, note that this is the approximate location of the 38.2% Fibonacci retracement from the 2024 high to low. Technically, a break of the EUR/USD support level of 1.0780 would reinforce the bears’ position of control over the trend.

We expect potential volatility in the euro exchange rate from Tuesday when the eurozone CPI inflation figures start to come in, with the initial focus on the German figure. According to the economic calendar, the state-level figures are released from 7am German time, which could give early guidance for the full German figure due later in the day. This, along with the Spanish CPI release, could give some direction for how the eurozone inflation figure will turn out mid-week. The eurozone is expected to post a 2.3% year-on-year figure, which is consistent with an ongoing process of deflation. The European Central Bank is expected to cut interest rates again in September, meaning it would take a big surprise in the data to have a lasting impact on the euro. Instead, it is the US dollar side of the equation that will provide the volatility this week. The Federal Reserve is due to release its policy decision on Wednesday. Moreover, there will be no change in US interest rates. We expect dovish guidance in line with expectations for the first interest rate in September. Now, the market is “fully priced in” for such an outcome, meaning the US dollar will rally if the Fed casts any doubt on the shot at starting its rate-cutting cycle in September. Furthermore, we expect the Fed to continue its new strategy of highlighting concerns that keeping interest rates unchanged for too long could negatively impact the labor market.

Concurrently, this is consistent with the Fed saying it believes it can afford to cut US interest rates before inflation falls to its 2.0% target. On Friday, the most important event for the US dollar comes when the US jobs report is released. If the data comes in below expectations, the market will price in more policy easing from the US Federal Reserve in the coming months, which will weigh on the dollar.

The US non-farm payrolls data for July is expected to show an increase of +178K jobs, with the unemployment rate remaining at 4.1%. This comes after a stronger-than-expected reading of +206K jobs in June.

EUR/USD Technical analysis and forecast:

There is no change in my technical view of the performance of the Euro against the US Dollar EUR/USD as the general trend will remain bearish and breaking the support 1.0800 is possible and will strengthen the bears’ control of the trend and thus prepare for stronger losses. Furthermore, the technical indicators will move towards strong oversold levels on the daily chart if the Euro Dollar price moves towards the support levels 1.0735 and 1.0600 respectively. On the other hand, and for the same time period, the psychological resistance 1.1000 will remain the most important for the upward shift of the general trend.

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• The GBP/USD exchange rate may remain under pressure amid a potential UK interest rate cut and Friday’s US jobs report.
• Ahead of these important and influential events, the GBP/USD rate is holding around 1.2810 at the time of writing, its lowest in over two weeks.

According to the economic calendar, the Bank of England decision this week will be the main focus for the pound, and the market is currently split 50/50 on whether the bank will go ahead with a rate cut. The heightened uncertainty means that markets will be sensitive to the outcome, and as such, we could see some high volatility this week.

Our general outlook for this week is for weakness in the near term as traders position themselves for potential volatility. Thus, this caution could reflect GBP/USD weakness, and a pullback towards 1.28 cannot be ruled out in the near term. A pullback to this level is likely to be more likely if global equity markets continue to struggle; last week we saw the pound come under pressure amid a broad sell-off in equity markets, a reminder that the exchange rate is sensitive to broader sentiment.

Currently, financial markets are pricing in just over a 50% chance of a rate cut on Thursday. Sterling’s weakness last week certainly reflects a rebuilding of this expectation, with the odds of a cut now closer to 40%. Also, the market has built up a record long position in sterling over recent weeks as investors look for further outperformance. Meanwhile, the risk is that this crowded positioning will be eroded by any disappointment, exposing sterling to a deeper pullback. Even in the case of a hawkish cut, we tend to think that markets will continue to sell sterling on a cut as positions are pared back, a “hawkish cut” being when the Bank cuts interest rates but signals to the markets that further cuts are not guaranteed and are dependent on upcoming economic data.

But what if the Bank does not cut rates?

This could provide some upward relief for the GBP, which could rebound towards the end of the week, especially if the US jobs report on Friday falls short of expectations. However, the rise in GBP/USD is likely to be limited as the bank will surely “pave the way” for a rate cut in September. According to analysts at Oxford Economics, “the conditions are ripe for the MPC to cut, but we think it will wait until September to avoid surprising the markets.” A strong commitment to a rate cut in September would make this a “dovish hold,” which does not entirely align with a GBP recovery.

Beyond short-term weakness prospects, Bank of America sees the structural backdrop still supportive for the GBP: “Excluding event risks and with the new government in a hurry to announce policy, we look for further GBP appreciation in the coming months. Asset investment remains supportive, but near-term positioning is crowded.”

Furthermore, this fits into the broader theme of near-term weakness before a resumption of the rally sometime in the coming weeks.

A big week for the US Federal Reserve

Turning to the US dollar, the Federal Reserve is expected to release its policy decision on Wednesday. No change in US interest rates will be made. Instead, we expect a dovish tone in line with expectations for the first rate cut in September. Concurrently, the market is now “fully priced in” for such an outcome, meaning the US dollar will rally if the Fed casts any doubt on the launch of a rate-cutting cycle in September. Moreover, we expect the Fed to continue its new strategy of highlighting concerns that keeping rates on hold for too long could be detrimental to the labor market.

This aligns with the Fed’s statement that it believes it can afford to cut interest rates before inflation falls back to its 2.0% target. Decisively, the most important event for the US dollar comes on Friday when the US jobs report is released. If the data comes in below expectations, the market will price in further policy easing from the Fed in the coming months, which will weigh on the dollar.

Technical forecasts for the GBP/USD pair today:

We believe that any weakness in the GBP/USD from here could lead to a decline in the exchange rate back to the 1.2760 area. Technically, this aligns with the 38.2% Fibonacci retracement of the April to July rise and considers the 50-day moving average (DMA) at 1.2780. The 50-day moving average halted the decline in June, where the uptrend was confirmed again.

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• Last week, the yen gained over 2% against the US dollar.

• The BoJ might hike rates by 10bps.

• The Fed will likely keep rates unchanged.

The USD/JPY outlook shows a mild bullish move as the pair recovers ahead of monetary policy meetings in Japan and the US. Investors are eyeing a potential rate hike from the Bank of Japan on Wednesday. Meanwhile, expectations suggest the Fed will maintain its current rates.

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Last week, the yen gained over 2% against the US dollar amid increased expectations for a BoJ rate hike. Investors have gained confidence in a hike because of increased pressure to support the weak yen. As a result, there is a 63% chance that Japan’s central bank will announce a 10bps rate hike tomorrow. 

However, experts have warned that there is a risk the central bank might disappoint. The BoJ has surprised markets many times before. If there is no rate hike tomorrow, it might be a dark day for the yen. 

Meanwhile, traders also anticipate the BoJ’s announcement of plans to reduce its bond purchases. Such an outcome would show confidence that Japan’s economy is on steadier ground, which could propel the yen higher.

On the Fed’s side, investors will focus on economic projections and Powell’s message. At the last meeting, the Fed projected one rate cut in December, which led to a decline in September’s rate cut expectations. If policymakers maintain this outlook, rate-cut bets will fall again, boosting the dollar. However, market participants expect a more dovish outlook given the recent cooler inflation. Notably, policymakers could signal the first cut in September.

USD/JPY key events today

• US CB consumer confidence
• US JOLTS Job Openings

USD/JPY technical outlook: Morning Star pattern ignites buyers

On the technical side, the USD/JPY price has broken above the 30-SMA, indicating a shift in control from bears to bulls. The RSI also shows a shift in sentiment, having broken above 50. This new move comes after the downtrend paused at the 152.01 support level. 

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At this point, the price made a Morning Star candlestick pattern, signaling a looming bullish reversal. Since then, bulls have taken charge and broken above the 30-SMA. However, they face a solid barrier at the 154.80 key level. A break above would clear the path to the next resistance at 158.02.

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• EUR/USD holds steady above 1.0800 after posting losses on Monday.
• June Consumer Price Index data from Germany will be watched closely by investors.
• The pair faces key support area at 1.0800-1.0810.

EUR/USD came under renewed bearish pressure on Monday and fell to its weakest level in three weeks near 1.0800. Although the pair managed to erase a small portion of its losses, it is having a tough time gathering recovery momentum ahead of Tuesday’s key macroeconomic data releases.

The cautious mood at the beginning of the week helped the US Dollar (USD) stay resilient against its major rivals. In the second half of the day, the mixed action seen in Wall Street allowed the USD to preserve its strength and limited EUR/USD’s rebound.

Early Tuesday, the data from Germany showed that the Gross Domestic Product contracted at an annual rate of 0.1% in the second quarter. This reading, however, failed to trigger a noticeable market reaction.

Germany’s Destatis will release Consumer Price Index (CPI) data for July later in the session. Investors expect the CPI to rise 0.2% on a monthly basis following the 0.1% increase recorded in June. A stronger-than-forecast monthly CPI reading could help the Euro find demand with the immediate reaction. Nevertheless, investors could refrain from taking large positions based on this data alone, especially ahead of the Federal Reserve’s monetary policy announcements on Wednesday.

On Tuesday, the US economic docket will feature Conference Board’s Consumer Confidence data for July and JOLTS Job Openings for June. If there is a significant increase in job openings, the USD could hold its ground and weigh on EUR/USD. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50 despite edging slightly higher in the European morning on Tuesday.

EUR/USD holds above the 1.0800-1.0810 support area, where the 100-day and the 200-day SMAs are located. If this support fails, 1.0740 (Fibonacci 78.6% retracement of the latest uptrend) could be seen as next bearish target before 1.0700 (psychological level, static level).

On the upside, first resistance aligns at 1.0840 (Fibonacci 38.2% retracement) ahead of 1.0860 (100-period SMA) and 1.0880 (Fibonacci 23.6% retracement).

• EUR/USD holds steady above 1.0800 after posting losses on Monday.
• June Consumer Price Index data from Germany will be watched closely by investors.
• The pair faces key support area at 1.0800-1.0810.

EUR/USD came under renewed bearish pressure on Monday and fell to its weakest level in three weeks near 1.0800. Although the pair managed to erase a small portion of its losses, it is having a tough time gathering recovery momentum ahead of Tuesday’s key macroeconomic data releases.

The cautious mood at the beginning of the week helped the US Dollar (USD) stay resilient against its major rivals. In the second half of the day, the mixed action seen in Wall Street allowed the USD to preserve its strength and limited EUR/USD’s rebound.

Early Tuesday, the data from Germany showed that the Gross Domestic Product contracted at an annual rate of 0.1% in the second quarter. This reading, however, failed to trigger a noticeable market reaction.

Germany’s Destatis will release Consumer Price Index (CPI) data for July later in the session. Investors expect the CPI to rise 0.2% on a monthly basis following the 0.1% increase recorded in June. A stronger-than-forecast monthly CPI reading could help the Euro find demand with the immediate reaction. Nevertheless, investors could refrain from taking large positions based on this data alone, especially ahead of the Federal Reserve’s monetary policy announcements on Wednesday.

On Tuesday, the US economic docket will feature Conference Board’s Consumer Confidence data for July and JOLTS Job Openings for June. If there is a significant increase in job openings, the USD could hold its ground and weigh on EUR/USD. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50 despite edging slightly higher in the European morning on Tuesday.

EUR/USD holds above the 1.0800-1.0810 support area, where the 100-day and the 200-day SMAs are located. If this support fails, 1.0740 (Fibonacci 78.6% retracement of the latest uptrend) could be seen as next bearish target before 1.0700 (psychological level, static level).

On the upside, first resistance aligns at 1.0840 (Fibonacci 38.2% retracement) ahead of 1.0860 (100-period SMA) and 1.0880 (Fibonacci 23.6% retracement).

• The British pound initially has shown a lot of volatility during the trading session on Monday, but it looks as if it is going to settle on some kind of sideways action.
• With this being the case, it’s worth noting that we are near the 1.2850 level.
• That is an area that previously had been significant resistance.
• The area previously had been very difficult to get above. And now that we have done that, we have pulled back to test that area again. 

Noisy Week for this Market

I think we’ve got a situation where if we can break above the top of the candlestick, we could go looking to the 1.30 level. In general, I do think that this is a pair that probably looks to the upside, but this is a market that has a lot to pay attention to this week, especially as we have central bank meetings coming up from the Federal Reserve, several others, including the Bank of England.

So, GBP/USD is a pair that I think continues to be very volatile, but right now looks as if it is trying to do everything it can to continue the overall uptrend. Because of that, if we break down below the bottom of the candlestick for the day, perhaps breaking below the 1.28 level, it’s really not until we get underneath air that I start to think about shorting, but even then, I’d have to see what was going on.

After all, then you have to start to ask questions about whether or not the US dollar is strengthening due to something going on in America, or if it is a concern about risk appetite in general. Furthermore, the Bank of England could say or do something to throw the markets into disarray. As things stand right now, it looks like we are trying to grind higher, and the phrase “grind”  might be the best way to describe what’s going on period.

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