A two-week winning streak for the AUDUSD currency pair came to an end as it closed the previous week 1.56% down. The U.S. dollar recovered its footing after surging against a basket of major currencies due to a tight U.S. labour market and rising expectations that the Federal Reserve will raise interest rates this week.
Initial jobless claims for the week ending July 15 were much lower than expected, coming in at 228K instead of the predicted 242K, sending a message to the market that the labour market’s resilience might still be a cause for concern. Additionally, the probability of a rate increase this week was almost absolutely priced in by the market, hitting 99.8% for a 25 basis point hike. In today’s economic events, the Australian services and manufacturing PMI’s were mixed, as Manufacturing activity picked up steam for July while Services activity faltered slightly.
Technical
The AUDUSD currency pair remains in an uptrend as it trades above the 100-day moving average; however, the uptrend is under threat, given the sharp reversal from resistance at the 0.68947 level. The pair easily broke through multiple Fibonacci Levels and now trades just below the 61.80% Golden Ratio at 0.67441, intersecting with its 100-day moving average.
A high volume breakdown below the 100-day moving average could indicate the presence of downside momentum. The 0.66510 level, which serves as a support level, will likely be the next point of interest to the downside if the pair moves lower. In contrast, given that the Relative Strength Index points to oversold levels, a reversal could play out at the Golden Ratio if demand outweighs supply. The 23.60% level at 0.68372, which forms a lower high, will likely be a level of significance to the upside.
Summary
The week ahead will be critical for the fate of the AUDUSD currency pair. The key drivers of market sentiment will be the Australian Inflation rate data and Federal Reserve’s interest rate decision on Wednesday. Given that a 25 basis point rate hike is seemingly set in stone, the AUDUSD will likely be weighed down by the Greenback’s higher-yielding potential, leaving the 0.66510 level probable.
Sources: U.S. Department of Labor, Australian Bureau of Statistics, Reuters, TradingView
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