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Talking Points:

- AUD/USD Outlook Mired by Bearish Formations, Wait & See RBA.

- GBP/USD Opening Monthly Range in Focus Following Dovish BoE Rate-Hike.

DailyFX TableAUD/USD

AUD/USD breaks out of a narrow range following the Federal Open Market Committee (FOMC) meeting, but the broader outlook remains tilted to the downside as the Reserve Bank of Australia (RBA) remains reluctant to lift the cash rate off of the record-low.

In light of the recent price action, AUD/USD looks poised for a larger recovery ahead of the next RBA meeting on November 7 as it initiates a fresh series of higher highs & lows. However, a 310K expansion in U.S. Non-Farm Payrolls (NFP) may temper the near-term rebound in the exchange rate as it encourages the FOMC to deliver a December rate-hike.

At the same time, a head-and-shoulders formation appears to be taking shape in AUD/USD following the break of the neckline around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), and the pair may continue to give back the advance from the summer months should RBA Governor Philip Lowe and Co. continue to endorse a wait-and-see approach for monetary policy.

AUD/USD Daily Chart

AUD/USD Daily Chart
  • Near-term outlook for AUD/USD has shifted to the upside as the pair comes off of channel support and carves a bullish sequence, with the 0.7650 (38.2% retracement) region offering support; the Relative Strength Index (RSI) appears to be highlighting a similar dynamic as it rebounds ahead of oversold territory.
  • A close back above the Fibonacci overlap around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion) raises the risk for a move back towards 0.7850 (38.2% retracement) to 0.7860 (61.8% retracement), which lines up with channel resistance.
  • Keep in mind, the broader outlook remains tilted the downside as a head-and-shoulders formation unfolds, with the next downside target coming in around 0.7590 (100% expansion) followed by the overlap around 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion).

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GBP/USD gives back the advance from earlier this week even as the Bank of England (BoE) raises the benchmark interest rate for the first time since 2006, and the pound-dollar exchange rate may continue to consolidate over the near-term as the central bank appears to be in no rush to further normalize monetary policy.

The 7 to 2 vote to remove the record-low interest rate suggests the Monetary Policy Committee (MPC) will carry a wait-and-see approach into 2018 as officials warn the ‘uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly.’ As a result, the BoE may merely attempt to buy more time at its last 2017 meeting on December 14, with the British Pound at risk of exhibiting a more bearish behavior over the remainder of the year as central bank officials tame expectations for an imminent rate-hike.

Keep in mind, the BoE may ultimately follow a similar path as the Federal Reserve as Governor Mark Carney and Co. start to normalize policy, and the central bank may stay on course to deliver one rate-hike per year as ‘spare capacity appeared to have eroded, if anything, a little more rapidly than the Committee had anticipated in its August projections.’ With that said, the broader outlook for GBP/USD remains constructive especially as the pair preserves the upward trend from earlier this year.

GBP/USD Daily Chart

GBP/USD Daily Chart
  • GBP/USD may continue to face range-bound prices as it holds above the October-low (1.3027), with the series of failed attempts to close below the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) raising the risk for a near-term rebound in the exchange rate.
  • A push above 1.3210 (50% retracement) raises the risk for another test of the Fibonacci overlap around 1.3300 (100% expansion) to 1.3320 (38.2% retracement), with the next topside target coming in around 1.3370 (78.6% expansion), which sits just below the October-high (1.3402).
  • Nevertheless, a break of the October range opens up the former-resistance zone around 1.2950 (23.6% expansion) to 1.2960 (78.6% retracement).
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--- Written by David Song, Currency Analyst

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