Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.6850.
- Add a stop-loss at 0.700.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.6960 and a take-profit at 0.7025.
- Add a stop-loss at 0.6900.
The AUD/USD formed a break and retest pattern as Jerome Powell testified in Senate. The pair rose to a high of 0.6950, which was slightly above this week’s low of 0.6885.
Jerome Powell Testimony
The AUD/USD pair rebounded even as worries about a global recession continued. While some commodity prices remain at an elevated level, others have declined sharply as investors worry about a potential recession.
For example, the price of key commodities like natural gas, copper, and iron ore have pulled back sharply recently. In most cases, lower commodity prices usually has a negative impact on Australia since exports play an important role in the economy.
Still, falling commodity prices could help lower the country’s inflation, which is at the highest level in years. In a statement on Tuesday, the Reserve Bank of Australia (RBA) governor warned that inflation will likely continue rising because of the soaring demand. He also warned about the tight labor market.
The AUD/USD pair rose slightly after the statement by Jerome Powell. In a testimony before a senate committee, Jerome Powell warned that the US could move to a recession in the coming months. He noted that the labor market was extremely hot and that inflation could keep rising in the coming month.
At the same time, he argued that high interest rates were necessary to manage this inflation. Therefore, analysts expect that the bank will hike rates by another 0.75% in July and then move to 0.50% in the following month. Expectations in the bond market is that the bank will hike above the neutral rate of 2.5% this year.
Jerome Powell will conclude his two-day testimony on Thursday while Markit will publish the latest US initial jobless claims data today.
AUD/USD Forecast
The AUDUSD price made a bearish breakout below the lower side of the symmetrical triangle on Tuesday. It also moved below the key support at 0.6950, which is the Woodie pivot point. At the same time, it made a break and retest pattern when it retested the lower side of the triangle pattern. In most cases, this pattern is usually a sign of continuation.
The pair has also moved slightly below the 25-day and 50-day moving averages. Therefore, the outlook of the pair is bearish, with the next key support level being at 0.6850.
