AUD/USD Struggles at Three-Week Low Against a Stronger USD Ahead of US PCE Price Index
Fundamental Overview
On Friday, AUD/USD finds itself in a tough spot, hitting a low not seen in about three weeks. The USD gains momentum and emerges as a significant pressure point. The market tone remains heavily offered, further influenced by technical selling below the 200-day SMA.
The AUD/USD pair experiences relentless selling pressure for the third consecutive day as it extends the previous day’s dramatic retracement decline from the 0.6820 zone. Spot prices steadily drop throughout the first half of the European session, reaching a roughly three-week low in the last hour near the 0.6620 area.
As the week concludes, the US Dollar (USD) gains substantial momentum, soaring to its highest level since July 10. This puts considerable pressure on the AUD/USD pair. Notably, the Advance Q2 GDP print and Weekly Initial Jobless Claims, two robust US macroeconomic indicators released on Friday, signal an incredibly resilient US economy. This also raises the possibility of the Federal Reserve (Fed) opting for further interest rate hikes.
It’s worth noting that Fed Chair Jerome Powell stated on Wednesday that for inflation to reliably return to the 2% target, the economy still needs to slow down, and the labor market needs to deteriorate. This stance maintains support for a future increase in US Treasury bond yields and leaves the door open for another 25 bps rate hike in September or November. Consequently, the yield on the standard 10-year US government bond rises above the 4.0% line, bolstering the US dollar’s strength.
Adding to the challenges faced by the Australian dollar is the deteriorating US-China relations. This factor clouds the positive impact of the stronger Australian CPI print published on Thursday and discourages investment in the Aussie, as it acts as a proxy for China. As a result of these various factors, the AUD/USD pair continues to move south, with technical selling below the 200-day Simple Moving Average (SMA) adding further bearish pressure.
However, it would be prudent to refrain from making any definitive positions on the extension of the current rejection decline from the 0.6900 neighborhood until there’s a clear follow-through selling and acceptance below the 0.6600 level. As the early North American session approaches, market participants await the release of the US Core PCE Price Index, the Fed’s favored inflation indicator. The data’s impact, combined with a general increase in risk aversion, may boost USD demand and create short-term trading opportunities around the AUD/USD pair.
AUD/USD Technical Analysis Daily Chart
Technical Overview
- AUD/USD is currently trading within a down channel.
- AUD/USD is positioned below all Simple Moving Averages (SMA).
- The Relative Strength Index (RSI) is in the neutral zone, while the Stochastic oscillator suggests a negative trend.
- Immediate Resistance level: 0.6700
- Immediate support level: 0.6624
How to Trade AUD/USD?
AUD/USD finds itself at a critical support level. If this level is broken, further downside movement is expected. The currency price reversed to the downside after forming a double top.
The current outlook for AUD/USD points towards a Sell signal.
Trade Suggestion
- Entry at 0.6597
- Take Profit at 0.6501
- Stop Loss at 0.6670