Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has rallied significantly during the early hours on Thursday, as we have seen the consumer price index numbers come out in the United States. They came out much lighter than anticipated, so traders are starting to focus on the idea that perhaps the Federal Reserve might have to cut rates later this year. Short term pullbacks should continue to be buying opportunities, and we have broken out of a rather significant symmetrical triangle. And therefore, I think you’ve got a situation where any time we pull back, that previous downtrend line should be support, as the 0.67 level also should offer extra support.

To the upside to 0.6850 Level was the swing high that offered significant resistance in the past, so I would pay attention to that level. But at this point, it’s a bit early to say that we won’t be able to go through there. I think at this point in time, as traders try to price in the idea of the Federal Reserve cutting rates down the road, it will continue to put pressure on the US dollar.

The Australian dollar, of course, is helped by the idea of commodity markets rallying, which of course is the whole idea of central banks around the world flooding the markets with cash, trying to get investment spurred, if that is in fact going to be the case, that should help the Aussie quite significantly. You also have to pay attention to the Asian economy and how it’s going, but right now, it certainly looks like this is all about the US dollar and Federal Reserve expectations.

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:

• EUR/USD consolidates its bullish appetite around 1.0900.
• The US Dollar melted on poor US CPI prints.
• US Producer Prices should keep the focus on the inflation issue.

The US Dollar (USD) accelerated its downward trend big time on Thursday, dragging the USD Index (DXY) to multi-week lows near the 104.00 neighbourhood in the wake of the publication of lower-than-estimated US inflation figures gauged by the CPI.

The steep decline in the Greenback motivated EUR/USD to revisit the 1.0900 hurdle for the first time since early June, always against the backdrop of further repricing of the start of the easing cycle by the Federal Reserve (Fed) in September.

Following the US CPI data, the CME Group’s FedWatch Tool suggests a nearly 93% chance of interest rate cuts in September, increasing to around 99% by December.

But then again, that’s the market speaking.

Against that backdrop, it is worth remembering that Chief Jerome Powell indicated he was not yet convinced that inflation was sustainably decreasing to 2%, though he showed “some confidence” it was trending in that direction. On Thursday, Federal Reserve Bank of St. Louis President Alberto Musalem argued that the consumer price data released earlier in the day is moving in the right direction. Musalem remarked that recent inflation data “has slowed and is consistent” with more price-sensitive consumers. He also expressed his belief that monetary policy is currently in the right place and mentioned that he is monitoring the data to see if inflation continues to moderate back to the 2% target.

Her colleague Mary Daly, President of the San Francisco Federal Reserve Bank, remarked that recent cooler inflation readings are a “relief,” and she anticipates further easing in both price pressures and the labour market, which would justify interest rate cuts. She noted that while inflation is likely to cool further, the progress may be “bumpy.” Daly indicated that the economy appears to be moving towards a scenario where one or two interest rate cuts this year, as projected in the June Fed policymaker forecasts, “would be the appropriate path.”

In the meantime, the macroeconomic landscape remained stable on both sides of the Atlantic. The European Central Bank (ECB) is considering further rate cuts beyond the summer, with markets anticipating two additional cuts by year-end, while debate continues among investors about whether the Fed will implement one or two (or three?) rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

The ECB’s rate cut in June, along with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks, potentially leading to further weakening of EUR/USD in the short term.

However, economic recovery prospects in the Eurozone, combined with signs of cooling in key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Looking ahead, market participants should closely monitor the release of further US inflation data gauged by Producer Prices on Friday as well as the advanced Michigan Consumer Sentiment print.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to meet the next up-barrier at the July peak of 1.0900 (July 11), followed by the June peak of 1.0916 (June 4). If the pair rises over this level, it may bring the March peak of 1.0981 (March 8) back into focus, followed by the psychological 1.1000 barrier.

If bears get the upper hand, spot might touch the 200-day SMA at 1.0802 before sliding to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the larger picture, it looks that further gains are on the way if the key 200-day SMA is routinely surpassed.

So far, the 4-hour chart indicates a modest improvement in the upside momentum. Initial resistance comes at 1.0900 ahead of 1.0916. On the flip side, the 55-SMA at 1.0798 comes first ahead of the 200-SMA at 1.0784 and ultimately 1.0709. The Relative Strength Index (RSI) has dropped below 65.

• In today’s analysis of the AUD/JPY it’s obvious that we still have plenty of bullish pressure.
• We are threatening the ¥109 level, and it looks like there’s not much to stop this market from going higher.
• We are overextended though, so you need to be very cautious at this point in time.
• With this, you need to not get aggressive and over levered.

But I look at this market as one that is very likely going to continue to find plenty of buyers on each and every dip. We recently did consolidate a little bit, but it was just a few trading sessions and bounced short term pullbacks. At this point in time, we’ll see a bit of support at the ¥108.50 level, and then again down at the ¥105 level.

The 50-Day EMA and its Importance

The 50 day EMA is closer to the ¥105 level as well, and it is rising quite significantly. In general, this is a market that I think continues to be very noisy, but it doesn’t make a lot of sense that you would be interested in owning the Australian dollar against the Japanese yen as the interest rate differential will continue to favor the trader who holds it.

The swap should continue to be very positive. The Bank of Japan has always had no interest whatsoever in trying to change the interest rate policy due to the fact that the debt is so high in Japan. And of course, that means that the central bank is essentially stuck with what it’s going to do. The AUD/JPY market is completely overstretched, like I said, but at this point in time, there’s only one way to trade this market, and that is to buy each and every pullback as we go forward. I have no interest whatsoever in shorting this market, as it is far too strong.

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• The yen has fallen to around 161.75 per dollar, just below its 38-year low, as the dollar strengthens.
• Obviously, this comes after Fed Chair Jerome Powell reiterated the central bank’s cautious approach to rate cuts.
• Powell said they need more data to gain confidence that inflation is moving sustainably towards 2%, although he warned that the economy and Labor market are showing signs of slowing.

According to reliable trading platforms, the Japanese yen also weakened in the run-up to the Bank of Japan’s monetary policy meeting in July, despite expectations that it could raise interest rates again and announce plans to reduce bond purchases this month. The central bank is under pressure to normalize monetary conditions more aggressively, as a weaker yen is pushing up import costs, raising inflationary risks.

On the economic data front, Japan’s corporate goods price index rose 2.9% year-on-year in June, the highest reading since August last year.

On the stock trading front, Japan’s Nikkei index hits new record high. According to trading, Japan’s Nikkei 225 index rose 0.61% to close at 41,832 on Wednesday, hitting a new all-time high as AI-related stocks and a weaker yen continued to push Japanese markets higher. Also, the broader TOPIX index rose 0.47% to 2,909, a 34-year high.

Likewise, Japanese stocks followed Wall Street gains after Federal Reserve Chairman Jerome Powell warned that keeping policy tightening for too long could hamper economic growth. Meanwhile, economic data showed that Japan’s corporate goods price index rose 2.9% year-on-year in June, the highest reading since August last year. Moreover, the index heavyweights saw notable gains such as Disco Corp (2.5%), Mitsubishi UFJ (1.5%), Sony Group (1.6%), Tokyo Electron (1.1%) and Fast Retailing (1.4%). In corporate news, Recruit Holdings jumped 3.6% after revealing that it will buy back up to 5.7% of its outstanding shares over the course of one year.

USD/JPY Technical analysis and Expectations Today

As we expected before, the general trend of the USD/JPY will remain bullish until a Japanese intervention in the forex markets stops the collapse of the yen exchange rate. Otherwise, the general trend of the USD/JPY will remain bullish and break record levels as the divergence between the US Federal Reserve’s policy. Clearly, this will be affected by the announcement of US inflation figures today, and the Bank of Japan’s policy remains clear and ongoing. Currently, the closest resistance levels for the currency pair are 161.85, 162.30 and 163.00 respectively.

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• It’s obvious that the EUR/USD currency pair has no idea what to do with itself.
• This makes a lot of sense, considering that we get a lot of major inflation news over the next couple of days.
• We get the Consumer Price Index numbers on Thursday, followed by the Producer Price Index numbers on Friday.
• With that being said, the market is likely to be very noisy over the next couple of sessions, and it does make a certain amount of sense that we went to the 1.08 level.

The 1.08 level has been a very important level multiple times, and therefore I think it’s a situation where traders are paying close attention to what’s going on from an inflationary standpoint in the United States, because we have already seen the European Central Bank cut rates, so the question now is whether or not the Federal Reserve will do the same. This of course is what a lot of institutional traders are begging for, because quite frankly most of them have never lived through a situation where interest rates were actually offering a real rate of return.

Point of Inflection

This could be a major point of inflection for this currency pair, and if we do take off to the upside, I think this is a situation where the next large round figure will be the thing that stops the euro. If we can break above the 1.09 level, then we could get something going. However, if we were to break down below the 1.08 level on a daily close, then it’s likely that the market could go down to the 1.07 level. The 1.07 level has been important more than once, and therefore it’s likely to offer support on any type of breakdown from here. If we break down below there, then the euro is probably in serious trouble.

All things being equal, I will probably wait to see what happens at the end of the week before I put any money to work, because quite frankly the euro is a great way to watch money grind back and forth and do nothing most of the time.

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Image: Keir Starmer campaign staff.

MUFG Bank says the UK’s political outlook contrasts favourably with developments in Europe and a strengthening economy will limit the amount of interest rate cuts the Bank of England can deliver in 2024.

These developments are constructive for the Pound, according to MUFG Bank, which has upgraded its forecasts against the Euro and Dollar in a mid-year research update.

The UK has not typically been associated with political stability since 2016, to the detriment of the Pound. But that could be about to change.

“We see the Labour Party winning a large majority in the UK general election on 4th July. We have raised our GBP forecasts in part on better political stability ahead and in part on the signs of a stronger rebound in economic growth than we previously expected,” says Derek Halpenny, head of FX research at MUFG Bank Ltd.

UK polls show the Labour Party’s likely vote share has fallen in the past two weeks but by not nearly enough to prevent Keir Starmer from being installed as the next Prime Minister.

Unfortunately for Prime Minister Rishi Sunak, the Conservatives have not been the beneficiary of falling Labour support; instead, Reform UK and the Liberal Democrats have increased their vote share.

Nevertheless, households and businesses will now look to Labour to formulate a plan for an economy that has struggled over recent years.

Image courtesy of ABN Amro.

“The economic policies put forward by Labour are very cautious and the strategy is clearly to strengthen trust with voters that it can govern and manage the economy,” says Halpenny. “We certainly assume better political stability is on its way with Labour intending to focus on ‘wealth creation’.”

The Euro has recently struggled amid increased political uncertainties following the June EU Parliamentary elections. However, in France, Emmanuel Macron took a gamble by dissolving the legislature and calling a snap vote that has caused considerable anxiety for market participants.

“The prospect of the Labour Party winning a large majority in the general election on 4th July is certainly helping to define a clear distinction with Europe,” says Halpenny.

The UK economy is meanwhile expected to strengthen, which can prevent the Bank of England from cutting interest rates as fast as previously expected.

Like the consensus of investment banks, MUFG thinks the first rate cut will fall in August. What will matter for the Pound is how many subsequent rate cuts come after this.

The rule of thumb is that the Pound would appreciate against currencies belonging to central banks that cut deeper.

“We see one further cut this year, in November, one less than previously given the better growth pick-up than we previously assumed,” says Halpenny.

MUFG thinks inflation rates will tick up towards the end of the year while real incomes rise and business and consumer confidence improve.

The investment bank raises its Pound to Euro forecast for end-Q3 from 1.17 to 1.19 (EUR/GBP: 0.8550 to 0.84). The year-end forecast is raised from 1.1630 to 1.19 (EUR/GBP: 0.86 to 0.84).

You can see how these forecasts compare to the median of all investment bank forecasts in the Pound Sterling Live / Corpay Q3 download.

The bank effectively maintains its Pound to Dollar forecast for end-Q3 (old: 1.2870, new: 1.2860), lowers its year-end target from 1.3020 to 1.2980, but there is a 3% uplift for the end-Q1 2025 forecast from 1.2870 to 1.3250.

To see how this contrasts with the consensus of the world’s biggest investment banks, please see here.

• The recent gains in the GBP/USD price have been capped at the 1.2845 resistance level. As bulls lose further momentum, the GBP/USD price has settled lower around the 1.2785 level at the time of writing.
• According to reliable trading platforms, the GBP/USD price has found support from the positive outcome of the parliamentary elections in Britain, which heralded a new political era for the economy.
• Also, traders are expecting the Labor Party to follow through on its election promises to support the domestic economy, although this could also mean increased pressure on the Bank of England to cut interest rates soon.

If this is the case, the GBP/USD price could continue to retreat from its highs amid expectations of a BoE rate cut in August, especially in light of the extent of the US central bank’s stubbornness in easing. Overall, Fed Chairman Powell’s speech to the Senate and Congress this week could provide fresh insights into their policy timeline, although the release of US CPI data later in the day could ultimately decide whether a September cut is likely.

According to the economic calendar, strong US CPI data could lead to further rate cuts, leading to further gains for the dollar across the board, while weak inflation figures could lead to a downside bias.

According to e-trading books, financial markets continue to monitor European and US political developments, with the pound providing net support on hopes of UK stability. According to trading, the pound to dollar (GBP/USD) exchange rate has gained a net gain to 1.2840 and is approaching a 4-month high, with the pound to euro (GBP/EUR) exchange rate rising to just below 1.1850.

There was a major surprise in the French general election, with tactical voting having a significant impact, with the left-wing NUPES becoming the largest party, centrist Macron in second place, and the RN pushed into third. According to UBS analyst Paul Donovan, “The unexpected result highlights that politics is becoming more important to market, but opinion polls are becoming less reliable as a guide to the outcome.”

Deutsche Bank commented, “The NPF has the most fiscally aggressive programme in terms of spending and taxation, and the market will be sceptical that the prospect of them in government now or later will lead to a higher deficit with associated concerns about debt sustainability and tense relations with Europe.” Added, “They have been talking about wealth taxes and higher corporate taxes that will not be market friendly.”

ING added, “From a forex perspective, there are remaining risks for the euro going forward, and we still see the common currency as a potential laggard in the G10 area.” It added in this context; “We see some downside risks for GBP/USD this week given the lingering political risks in the EU.” In contrast, the UK Labor Party will retain a dominant majority when the House of Commons returns on Tuesday. MUFG Bank commented on the GBP outlook. Ended, “We view political stability as a positive and do not assume any radical or imminent shift in fiscal policy.”

Technical forecasts for the GBP/USD pair today:

The GBP/USD pair appears to be forming a new range on the four-hour chart, testing the June highs at the key psychological level of 1.2800. technically, holding as resistance could take the pair back to the support range around the minor psychological level of 1.2650. At the same time, the 100 SMA remains below the 200 SMA to suggest that the stronger trend is to the downside or that the ceiling is likely to hold rather than break. However, the price is moving above both simple moving averages to suggest bullish momentum. Also, these moving averages could hold support around the 1.2700 area.

Meanwhile, Stochastic is heading lower after spending some time in overbought territory, suggesting that sellers are finally taking control while exhausted buyers take a breather. At the same time, the RSI is also moving lower, so GBPUSD could follow suit while bearish pressure is present. Ultimately, both oscillators have a lot of room to cover before reaching oversold territory to reflect exhaustion among sellers.

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• EUR/USD traded with a mild bid bias around 1.0820.
• The Greenback navigated a vacillating session ahead of the US CPI.
• There was no news from Powell’s second testimony.

The US Dollar (USD) alternated gains with losses on Wednesday, prompting the USD Index (DXY) to end the session barely changed from the previous day’s closing levels.

This irresolute price action in the Greenback motivated EUR/USD to also hover around the 1.0820 region, up marginally for the day, as investors digested the second Congressional testimony by Chair Jerome Powell before Congress.

While Powell’s message largely matched his previous comments, he suggested that he was not yet ready to conclude that inflation was sustainably decreasing to 2%, though he expressed “some confidence” that it was heading in that direction.

Following Powell’s testimony, the macroeconomic environment remained relatively stable on both sides of the Atlantic. That is, while the European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations suggesting two additional cuts by the end of the year, there is ongoing debate among investors about whether the Fed will implement one or two rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

According to the CME Group’s FedWatch Tool, there is approximately a 74% chance of interest rate cuts in September, rising to nearly 96% by December.

The ECB’s rate cut in June, combined with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks. This divergence could potentially lead to further weakening of EUR/USD in the short term.

However, the prospects of economic recovery in the Eurozone, along with signs of cooling in some key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Moving forward, market participants should closely follow the release of US inflation figures tracked by the CPI on Thursday, as those readings could impact on the timing of the interest rate cut by the Fed.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to meet its initial up-barrier at the July peak of 1.0845 (July 8), followed by the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). If the pair breaks above this level, it might bring the March peak of 1.0981 (March 8) back into focus, followed by the psychological 1.1000 mark.

If bears regain the upper hand, spot may approach the 200-day SMA at 1.0800 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that additional gains are on the way if the important 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows some gradual recovery. The 200-SMA at 1.0783 provides the initial contention, followed by the 55-SMA at 1.0781 and finally 1.0709. On the upside, the initial obstacle is at 1.0845, followed by 1.0852 and 1.0902. The Relative Strength Index (RSI) has decreased to about 53.

• EUR/USD traded with a mild bid bias around 1.0820.
• The Greenback navigated a vacillating session ahead of the US CPI.
• There was no news from Powell’s second testimony.

The US Dollar (USD) alternated gains with losses on Wednesday, prompting the USD Index (DXY) to end the session barely changed from the previous day’s closing levels.

This irresolute price action in the Greenback motivated EUR/USD to also hover around the 1.0820 region, up marginally for the day, as investors digested the second Congressional testimony by Chair Jerome Powell before Congress.

While Powell’s message largely matched his previous comments, he suggested that he was not yet ready to conclude that inflation was sustainably decreasing to 2%, though he expressed “some confidence” that it was heading in that direction.

Following Powell’s testimony, the macroeconomic environment remained relatively stable on both sides of the Atlantic. That is, while the European Central Bank (ECB) is contemplating further rate cuts beyond the summer, with market expectations suggesting two additional cuts by the end of the year, there is ongoing debate among investors about whether the Fed will implement one or two rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

According to the CME Group’s FedWatch Tool, there is approximately a 74% chance of interest rate cuts in September, rising to nearly 96% by December.

The ECB’s rate cut in June, combined with the Fed’s decision to maintain rates, has widened the policy divergence between the two central banks. This divergence could potentially lead to further weakening of EUR/USD in the short term.

However, the prospects of economic recovery in the Eurozone, along with signs of cooling in some key US economic indicators, may mitigate this disparity and occasionally support the pair in the near future.

Moving forward, market participants should closely follow the release of US inflation figures tracked by the CPI on Thursday, as those readings could impact on the timing of the interest rate cut by the Fed.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to meet its initial up-barrier at the July peak of 1.0845 (July 8), followed by the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). If the pair breaks above this level, it might bring the March peak of 1.0981 (March 8) back into focus, followed by the psychological 1.1000 mark.

If bears regain the upper hand, spot may approach the 200-day SMA at 1.0800 before falling to a low of 1.0666 on June 26. From here, the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, it appears that additional gains are on the way if the important 200-day SMA is consistently surpassed.

So far, the 4-hour chart shows some gradual recovery. The 200-SMA at 1.0783 provides the initial contention, followed by the 55-SMA at 1.0781 and finally 1.0709. On the upside, the initial obstacle is at 1.0845, followed by 1.0852 and 1.0902. The Relative Strength Index (RSI) has decreased to about 53.

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