AUD/USD Reverses Lower From Trendline Resistance To Erases Early Day Gains

Following a period of consolidation near support at 0.7874, AUD/USD broke higher after US data fell short of expectations. Gains in the pair were capped around the 0.7900 handle as a declining trendline came into play. AUD/USD has given back gains as of the European close and trades relatively unchanged on the day.

The declining trendline in AUD/USD has been in play since the start of the month and has held the exchange rate lower on several attempts. Three points of confluence were seen holding the rally today as the trendline fell in close proximity to the 0.7900 round number and the 76.4% Fibonacci retracement measured from yesterday’s highs to today’s low.

The trigger for an upside break in early North American trading came from a shortfall in the US producer price index and weekly unemployment claims. PPI declined 0.1% in June, missing the estimate for a gain of 0.1% and following a gain of 0.1% in the prior month. Annually, PPI rose 1.9% versus an expected 2.2% and core PPI rose 1.8% against a forecasted rise of 2.1%.

Weekly unemployment claims missed expectations by a small margin as the Department of Labor reported 244,000 claims filed in the week to August 4th versus an expected 240,000 claims.

AUD/USD traded around 0.7880 ahead of the data release and broke above highs posted in early European trading as a result of it, hitting a high of 0.7902 which is currently the high for the day.

Fed member Dudley spoke about wage inequality at the Federal Reserve Bank of New York, his comments did not have a significant impact on the exchange rate. He briefly discussed monetary policy and stated that despite a relatively weak pace of growth, he expects a moderate pace of growth, a somewhat further strengthened of the labor markets and inflation to hit the 2% objective over the medium-term.

AUD/USD has declined every day in the month thus far but the decline has been marginal. From the spike high posted on August 1st, the pair trades lower by less than 2.5%. There is some potential for a doji print for Thursday to snap the current seven consecutive day losing streak.

Support at 0.7874 marks a spike low posted in late July and has held the pair higher on a 4-hour chart. Slightly ahead of the level, a rising trendline is in play that originates from the low posted on Tuesday. A break below support signals a bearish continuation with the next level of downside interest falling at 0.7835, marking the 2016 high.

Bulls will want to see a push above the resistance confluence of 0.7900 to signal a reversal in trend.

AUD/USD 1-Hour Chart

AUDUSD 1H Aug 10

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.