Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6535.
- Add a stop-loss at 0.6800.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6625 and a take-profit at 0.6700.
- Add a stop-loss at 0.6550.
The Australian dollar made a strong bearish breakout after the hawkish FOMC minutes. It crashed to the crucial support level at 0.6600, its lowest swing since May 14th. It has dived by almost 1.50% from its highest level on Friday.
Hawkish Fed minutes
The Federal Reserve published hawkish minutes of the last monetary policy meeting on Wednesday. These minutes showed that officials were still concerned about inflation in the United States, which has remained stubbornly high this year.
The most recent data showed that the headline Consumer Price Index (CPI) slowed to 3.4% in April while the core CPI fell to 3.6%. Despite this slowdown, inflation remained slightly higher than the Fed’s target of 2.0%.
Most Fed officials who have talked recently have signaled that interest rates will remain higher for longer. In a recent statement, Raphael Bostic hinted that the bank will start cutting rates in the fourth quarter if inflation continues falling.
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The bank’s challenge is that the economy is slowing dramatically. Data released this month showed that the manufacturing and services sectors have contracted. Also, retail sales and consumer confidence have pulled back recently.
The Fed’s minutes came a day after the Reserve Bank of Australia (RBA) released its report. Like the Fed, the bank signaled that the board considered whether to raise rates even as inflation slowed recently. These documents mean that the two central banks have converged on believing that rates will remain higher for longer.
The next important catalyst for the AUD/USD exchange rate will be the flash manufacturing and services PMI data. Economists expect the US data to show that the two figures moved to 51.2 and 51.3, respectively.
The US will also publish the latest new home sales, initial and continuing jobless claims, and building permit numbers.
AUD/USD technical analysis
The AUD/USD exchange rate formed a small double-top pattern around 0.6710. It has now dropped below the pattern’s neckline at 0.6650. The pair has also flipped the crucial support at 0.6643 (May 3rd, April 9th, and March high) into a resistance point.
It has also dropped below the 50-period moving average while the Money Flow Index (MFI) and the Stochastic Oscillator have pointed downwards. The pair has also retreated below the first support of the Woodie pivot point.
Therefore, the pair will likely continue falling as sellers target the second support at 0.6535. The stop-loss of this trade is the pivot point at 0.6670.
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