AUD/USD Turns Higher On A Weaker Dollar

Thursday’s dollar recovery was short-lived as the trade-weighted index (DXY) turned lower, breaking to fresh six-month lows. AUD/USD was boosted by the weaker greenback and pierced to fresh weekly highs after posting a decline yesterday that had snapped a prior six-day winning streak.

AUD/USD found support in the Asian session around 0.7410 and rallied into the European open to post a high of 0.7469. Momentum has slowed since early European trading despite a steady fall in DXY below support.

The US dollar index had turned higher from support at 97.35 on Thursday to erase most of the prior day’s loss. The level marks previous support from December 2015 and resistance from July 2016. DXY turned lower after hitting a high in late day trading on Thursday and has broken below the support level to set a bearish tone.

The economic calendar pertaining to the pair was relatively light today. Fed member Bullard discussed monetary policy in a presentation held in Washington. His outlook was dovish as he commented on weak economic data since the March meeting and stated that the Fed’s path of normalization was too aggressive. He also stated that the recent decline in the unemployment rate is unlikely to have a significant impact on inflation given the relationship between the two, even if unemployment continues to fall further,

Fed member speeches ahead of the June Fed meeting should clarify whether the central bank intends to raise rates next month. Bullard is a known dove and the reaction to his comments in the markets have been relatively subdued. Nevertheless, there is a risk of volatility if other members carry an equally dovish view as the futures markets are pricing in a 74% chance of an increase in June.

This week’s gain in AUD/USD snaps a prior four-week losing streak. The pair is seen trading near resistance from a declining trendline that will be important for the near-term trend.

The trendline connects the April 17th high with highs posted on April 23rd and is best seen on a 4-hour chart. The pair has fallen short of testing the trendline this week but a bullish break would tend to cause a shift in near-term sentiment. Resistance at 0.7448 is seen holding today’s rally. The level marks support that held the pair higher in late April.

A rising channel has been containing price action in the recovery from lows posted earlier this month. The pair is seen nearing the upper line of the channel once again after a rejection from it on Thursday. A break below the lower bound on the channel, found near support at 0.7391, would be required to signal a bearish continuation in the predominant downtrend.

USD/CAD 4-Hour Chart

AUDUSD 4H May 19

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.