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Harami Pattern Drives AUD to New Monthly Highs
Summary:
Markets are betting less on a 100-basis point rate hike by the Federal Reserve in July, putting pressure on the dollar and extending support. The AUDUSD rose for the fourth consecutive session and climbed to a new monthly high.
CLOSED
0.69200
Opening Price
0.67500
TP
0.70700
SL
0.63639 +0.00406 +0.64%
92
Point
Profit
0.67500
TP
0.69108
Closing Price
0.69200
Opening Price
0.70700
SL
Fundamentals
The RBA Governor Lowe's speech this morning made clear that the RBA has "more work to do". But his view of where the neutral cash rate might lie still includes 2.5%, below the range implied by the deputy governor.
Also, Lowe is open to the possibility that "perhaps we have passed the point of full employment". In this case, the RBA would need to incorporate policy into clearly restrictive areas to bring inflation back to the target level.
The AUDUSD gained a sustained rally since hitting a two-year low of 0.6680 level last week, achieving the fourth session of gains. Meanwhile, spot prices rose to a new monthly high and held above the 0.6900 level in the early European session.
Investors continue to lower their bets on expectations of a mega rate hike by the Fed after several FOMC members indicated last week that they would likely stick to a 75-basis point hike at the upcoming meeting. This is considered a key factor in the recent sharp decline in the dollar from 20-year highs, which in turn continues to provide upside momentum for the AUDUSD currency pair.
Besides, the positive tone around equity markets dragged the safe-haven dollar to its lowest level since July 6 and benefited the risk-sensitive AUD. The U.S. stock market closed Tuesday with the three major stock indexes oscillating sharply upward throughout the day. The Dow initially closed up 750 points, the Nasdaq closed up 3.11% and the S&P 500 closed up 2.75%.
Moreover, the (hawkish) RBA monetary policy meeting minutes released on Tuesday further supported the AUD and further boosted the AUDUSD exchange rate.
However, for the current market, investors seem more confident that the recent surge in U.S. inflation to a four-year high will force the Federal Reserve to make a larger rate hike later this year. In turn, this will still support a rise in U.S. Treasury bond yields, which will serve to limit further declines in the dollar and limit the AUDUSD pair, at least for now.
As trading in the New York session gets underway, investors continue to look forward to U.S. economic reports, which include home sales data and U.S. EIA crude oil inventories for the week ending July 15. Investors will also take cues from the broader risk sentiment to seize short-term opportunities.
Technical Analysis
The AUD bulls have tested the key supply zone, which lies within a narrow range of 0.6900-0.6930. With the initial establishment of the harami pattern, AUD bulls have initiated an upward-sloping trend climb from the July 14 low at 0.6680. Meanwhile, the Relative Strength Index (RSI) is alternating upward in the range of 60-80, which indicates that the bullish momentum will be extended.
In addition, AUD bulls are attracting a lot of bulls to buy on the dips at Tuesday's high of 0.6915 level. As the harami pattern continues to stack up, bulls may continue to push the asset to the June 28 high of 0.6965 level, leading to an upward test of the 0.7000 psychological level.
However, with a halt before the New York session, the dollar surged 30 points in the short term, and non-US currencies suffering heavy losses disrupted the rhythm of the rising AUD. If bears drop below the early trend starting point of 0.6880 level, the AUD rise for four consecutive trading days will only come to an end. Operationally, it is recommended to go short at highs in the range starting point of 0.6880.
Trading Recommendations
Trading direction: Short
Entry price: 0.6920
Target price: 0.6750
Stop loss: 0.7070
Deadline: 2022-08-01 20:00:00
Support: 0.6850/0.6800
Resistance: 0.6903/0.6918
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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