Basic overview
The US dollar returned strongly last Friday after the release of the strong US non-farm payrolls report, where the data surprised with strong growth in jobs and wages. There were also negatives such as high unemployment, but overall, we can say it was a good report.
The data sparked a tight repricing of interest rate expectations, with the market now once again expecting just one cut by the end of the year. It's not a huge problem in the bigger picture, but right now the sentiment is bullish for the dollar and we will likely need a catalyst to turn it around again.
On the other hand, the Australian dollar was supported by a slightly more hawkish Reserve Bank of Australia and positive risk sentiment due to the recovery in global growth. Furthermore, the recovery of the Chinese economy is generally good news for the Australian dollar, as well as it being Australia's largest trading partner. If we return to risk sentiment, the dollar may start to lose ground again.
Technical Analysis of AUDUSD – Daily Time Frame
AUD/USD daily
On the daily chart, we can see that AUDUSD has fallen back to the bottom of the recent range around the 0.66 handle where we can also find the 38.2% Fibonacci retracement level of the entire rally since the end of April.
This is where we can expect buyers to step in with specific risks below the support level to put them in a position to rally to new highs with a better risk to reward setup. On the other hand, sellers will want to see the price break down to gain more conviction and target the 0.6464 level next.
Technical Analysis of AUD/USD – 4-Hour Time Frame
Australian dollar against the dollar 4 hours
On the 4-hour chart, we can see more clearly the price action in a limited range between resistance 0.67 and support 0.66. Tomorrow's US CPI report will likely decide where we go next as hot data should give the US dollar more strength and send the pair lower, while weak numbers will likely weaken the US currency, sending the Australian dollar higher against… US dollar.
Technical analysis of the AUD/USD pair – 1 hour time frame
AUD/USD 1 hour
On the hourly chart, we can see that from a risk management perspective, sellers will have a better risk to reward setup around the 0.6630 resistance where they will also find the 38.2% Fibonacci retracement level of the recent decline.
On the other hand, buyers will want to see the price rise higher to gain more conviction and increase bullish bets to new highs. The red lines mark the average daily range for the day.
Upcoming stimuli
This week is a bit empty on the data front although we will see the biggest market moving events tomorrow when we get the US CPI data and the FOMC rate decision. On Thursday, we have the US Producer Price Index and the latest US unemployment claims numbers. On Friday, we wrap up the week with the University of Michigan Consumer Survey.