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AUD/USD Retreats Amid Resilient US Dollar; Eyes on Upcoming PMI Data

The AUD/USD pair faces downward pressure amid a resilient US Dollar, hitting 10-week highs. While US investors anticipate potential tightening of the Federal Reserve’s interest rate policy, Australian inflation softening supports an unchanged rate by the RBA. Technical indicators point to mixed sentiment with bearish bias. Market eyes are on the US PMI data for further cues. Both economic and technical analysis remain crucial in shaping trading strategies.

Main Points:

  • The AUD/USD pair faces selling pressure as the US Dollar Index (DXY) hits a 10-week high, deepening recession fears in developing nations.
  • Investors anticipate the Federal Reserve may further tighten interest rate policy due to a strengthening US economy.
  • Australian inflation continues to soften; the Reserve Bank of Australia (RBA) is expected to keep interest rates unchanged.
  • Technical Analysis: Immediate resistance at 0.6446 with the nine-day Exponential Moving Average (EMA); support found at the 0.6400 psychological level.

Detailed Analysis:

The AUD/USD pair has retreated to near 0.6400 after testing immediate resistance at 0.6460 in the early New York session. The US Dollar remains resilient, refreshing a 10-week high at 104.00, fueled by recession fears in developing nations and positive cues from overnight futures in the S&P 500.

US equities are expected to see volatile action as investors tread cautiously ahead of the Jackson Hole Symposium. Richmond Fed Bank President Thomas Barkin’s recent comments on a possible requirement for tighter monetary policy if inflation remains high further add to the market dynamics.

Investors are keenly watching preliminary United States PMI data for August, to be reported by S&P Global. Predictions point to Manufacturing PMI remaining steady at 49.0, services possibly falling to 52.0, and a half-point dip in the composite to 51.5 – the lowest since February.

On the Australian front, the consistent softening of inflation, slowing hiring momentum, and an aging population may prompt the RBA to keep interest rates unchanged in September. A lack of triggers supporting inflation further supports this anticipated decision.

Technical Outlook for AUD/USD:

Trading higher around 0.6430 during the European session, the AUD/USD pair is treading water, with investors seeking cues from US PMI data. A nine-day EMA at 0.6446 acts as immediate resistance, with a 23.6% Fibonacci retracement at 0.6489.

Potential breakouts could open doors for buyers to explore regions around the 21-day EMA at 0.6518 and the 38.2% Fibo at 0.6566. The downside holds the 0.6400 psychological support, followed by the monthly low at 0.6364.

Indicators such as the Moving Average Convergence Divergence (MACD) line suggest tepid momentum, reflecting mixed sentiment in the AUD/USD pair. With the 14-day Relative Strength Index (RSI) remaining below 50, the bearish bias continues to influence the pair.

TRADE IDEA DETAILS

CURRENCY PAIR: AUD/USD

CURRENT TREND: Bearish (Short-term)

TRADE SIGNAL: SELL

👉ENTRY PRICE: Approximately 0.6446 (Nine-day EMA acting as immediate resistance)

✅TAKE PROFIT: 0.6364 (Near the monthly low, offering a technical support level)

❌STOP LOSS: 0.6489 (Just above the 23.6% Fibonacci retracement, acting as a key resistance)

RISK MANAGEMENT:
A proper risk management strategy should include risking no more than 1-2% of the trading capital on this trade. By setting the stop loss and take profit levels appropriately, traders can manage the risk-to-reward ratio, aiming for at least a 1:2 ratio.

ANALYSIS:
The AUD/USD pair has shown signs of bearish momentum in the short term. The technical indicators such as the MACD line and 14-day RSI being below 50 suggest a bearish bias.

From a fundamental perspective, the resilient US Dollar and the Federal Reserve’s potential interest rate tightening contribute to a negative outlook on AUD, especially with the softening of inflation in Australia.

TRADE PLAN:
The strategy is to enter a sell position near the nine-day EMA at 0.6446, as it has been acting as immediate resistance. Traders should monitor the position with a stop loss at 0.6489, a level where a breakout could invalidate the bearish view.

The take profit is set at 0.6364, near the monthly low, allowing a good risk-to-reward ratio while aligning with the short-term bearish view.

Timeframe for monitoring: A 4-hour to daily chart would be suitable for this analysis, keeping an eye on both technical levels and upcoming economic data releases.

FINAL THOUGHTS:
This trade idea is based on both technical analysis and current economic factors influencing the AUD/USD pair. As with all trades, it’s vital to remain vigilant and adjust the strategy as necessary, based on real-time data and market conditions. Given the expected US PMI data and the possible tightening of US monetary policy, traders should closely monitor these events, as they could significantly impact the pair’s direction.

Conclusion:

Investors are closely monitoring the US and Australian economic indicators, coupled with technical levels, as they shape their strategies around the AUD/USD currency pair. The anticipation of PMI data and the Federal Reserve’s potential reaction to the strengthening US economy could dictate the pair’s direction in the coming sessions.