Hopes for AUD/USD Breakout Undermined by Bearish RSI Formation
- AUD/USD Outlook Mired by Bearish RSI Formation; Australia Employment Report on Tap.
- USDOLLAR Rebound to Unravel on Wait-and-See Fed; Updated Forecasts in Focus.
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Chart - Created by David Song
- AUD/USD may continue to retrace the decline from the April high (0.7834) as it breaks out of the downward trend, but the lack of momentum to break/close back above former support around 0.7490 (61.8% retracement) to 0.7500 (61.8% expansion) may keep the pair capped especially the Relative Strength Index (RSI) preserves the bearish formation carried over from March.
- Nevertheless, with Australia Employment anticipated to increase another 15.0K in May, a further improvement in the labor market may heighten the appeal of the higher-yielding currency and encourage the Reserve Bank of Australia (RBA) to gradually move away from its easing cycle as it highlights an improved outlook for growth and inflation.
- May see AUD/USD hold a narrow range going into the week ahead as the pair appears to be capped by the Fibonacci overlap around 0.7490 (61.8% retracement) to 0.7500 (61.8% expansion), with near-term support coming in around 0.7380 (50% retracement) to 0.7390 (78.6% expansion).
- The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd has flipped back net-long AUD/USD on June 9, with the ratio narrowing from a near-term extreme as it climbed to +2.25 at the end of the previous month.
- The ratio currently sits at +1.08 as 52% of traders are long, with short positions 29.5% higher from the previous week even as open interest stands 6.7% below the monthly average.
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|Index||Last||High||Low||Daily Change (%)||Daily Range (% of ATR)|
|US Dollar Index||11890.36||11890.77||11849.52||0.32||92.78%|
Chart - Created by David Song
- Despite the limited market reaction to the better-than-expected U. of Michigan Confidence survey, the USDOLLAR may grind higher ahead of the Federal Open Market Committee (FOMC) policy meeting scheduled for the week ahead as it climbs back above the Fibonacci overlap around 11,836 (61.8% retracement) to 11,843 (38.2% retracement).
- The FOMC is widely anticipated to retain its current policy, with Fed Funds Futures are showing a close to zero percent probability for a June rate-hike, but another 9 to 1 split accompanied by a downward revision in the growth, inflation as well as interest rate dot-plot may produce headwinds for the greenback as the central bank looks to further delay its normalization cycle.
- Next topside hurdle comes in around 11,898 (50% retracement) following by the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
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--- Written by David Song, Currency Analyst
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