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AUD/USD Risks Larger Recovery Ahead of RBA Rate-Decision

AUD/USD Risks Larger Recovery Ahead of RBA Rate-Decision

Talking Points:

- AUD/USD Breaks Out of Near-Term Range; Risks Larger Recovery Ahead of RBA Rate-Decision.

- USDOLLAR Searches for Support Following Dismal NFP Report; Fed Rhetoric in Focus.

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AUD/USD Daily Chart

Chart - Created by David Song

AUD/USD appears to be making a more meaningful attempt to break out of the near-term range, with a close above 0.7240 (100% expansion) to 0.7270 (38.2% retracement) raising the risk for a larger recovery; longer-term outlook remains tilted to the downside as long as the Relative Strength Index (RSI) preserves the bearish formation carried over from March.

  • Even though the Reserve Bank of Australia (RBA) is widely anticipated to keep the official cash rate (OCR) at the record-low of 1.75% in June, the fresh batch of central bank rhetoric may drag on the aussie should Governor Glenn Stevens and Co. keep the door open to further assist with the rebalancing of the real economy, with Credit Suisse Overnight Index Swaps (OIS) still highlighting expectations for another 25bp rate-cut over the next 12-months.
  • A closing price above the Fibonacci overlap around 0.7240 (100% expansion) to 0.7270 (38.2% retracement) may spur a move back towards former support around 0.7490 (61.8% retracement) to 0.7500 (61.8% expansion).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long AUD/USD since May 3, with the ratio hitting a near-term extreme at the end of May as it climbed to +2.25.
  • The ratio currently sits at +1.95 as 66% of traders are long, with short positions 5.4% lower from the previous week, while open interest stands 3.9% above the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index11859.0811978.111844.25-0.92312.81%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR may face additional headwinds over the near-term as the dismal Non-Farm Payrolls (NFP) report drags on interest rate expectations, with Fed Funds Futures now showing a less than 10% probability for a rate-hike at the June policy meeting.
  • Will keep a close eye on the slew of central bank rhetoric due out over the coming days as Fed Governor Lael Brainard, Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren and Fed Chair Janet Yellen are scheduled to speak, with cautious comments from central bank officials raising the risk for a further decline in the greenback as market participants push out bets for higher borrowing-costs.
  • The Fibonacci overlap around 11,836 (61.8% retracement) to 11,843 (38.2% retracement) appears to be offering near-term support, but a break/close below the region may open up the next downside target around 11,745 (50% retracement) to 11,759 (23.6% retracement).
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Read More:

US DOLLAR Technical Analysis: Another Monthly Opening Range Worth Watching

Gold Prices in Free Fall- Shorts at Risk into NFP

EUR/GBP Breakdown Eyes Critical Support at 7520

GBP/USD Successful Re-Test of Former Resistance Line

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.