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Forex Analysis
As the Australian Reserve Bank announces monetary policy before the European open tomorrow, the main question is whether it will hike by 25bp or by 50bp? It is possible that a larger, 75bps hike may happen, but the market finds this unlikely based on Governor Lowe’s recent speech in which he did not mention the possibility. To avoid dramatic repricing, central banks typically publish forward guidance early. That said, we’re less likely to pay much attention to what the RBA, Fed, and SNB say in the future after they surprised us last time. Under the weight of the dominant US dollar, the Australian dollar and British pound have been uncoupled from monetary policy and short-term rate dynamics. Both falling despite the consecutive rate hikes in 2022.
The AUDUSD sentiment indicator on the ActivTrader platform is also hinting that there could be a reversal lower in the AUDUSD due to the rising retail trader bullish sentiment. The more crowded and higher the bullish expectations get in this trade, the more likely the more informed money will sell into this buying and bring price back down.
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The Daily chart has been below the 200-period EMA since April 2022 and there is a chance that 0.7200 becomes an upward target and resistance level. Today’s price action is still within Friday’s range and below 0.7000 there is a heavily traded zone to get through. The M30 chart is showing price action above the 200-period EMA (yellow) and that could now act as dynamic support at 0.68622 along with an intraday swing high.
Looking left across the daily chart 0.69000 has proven to be support in May and June and therefore could be resistance in July.
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Due to the nature of the global forex markets, we must consider what else is going on. Firstly, looking at the EURAUD which often trades inverse to the AUDUSD, is currently in a daily rising channel and is finding the 200-period moving average to be problematic. This could be about to drop hard and below the 1.5000 would open prices all the way own and possibly past the 1.4200. Which may mean the AUDUSD has legs to the upside.
We should also look to China, where we see the Caixin Manufacturing PMI rising back above the 50 level, and showing an expansion, which could be great for Australian exports. With Chinese manufacturing contracting the price of Australian coal fell over 50%, so it will be interesting to see if we get a continued rise in Chinese economic data and a recovery in exports like coal for Australia.
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As with most major US dollar crosses, a lot does depend on how strong or weak the US dollar is. One deflationary thing coming down the pipe could be a reduction in Chinese tariffs on US consumer goods. President Biden could unwind that soon helping the US consumer and the inflationary pressures. This could also then feed into the Feds next decision to raise rates at a reduced pace, and ultimately stop the DXY from rising above $106.
For now, I will keep an eye on the price action in the AUDUSD and look for reasons to sell the rips until we get price action above the daily 200-period EMA.
