Downside Exhaustion Could Revive Bullish Momentum

Summary:

This suggests a potential rebound may emerge from current levels, particularly as the price is testing a descending trendline.

BUY AUDUSD

Close Time

CLOSED

0.65078

Entry Price

0.65800

0.64200

0.71474 +0.00197 +0.28%

15.1

Pips

Profit

0.64200

0.65229

Exit Price

0.65078

Entry Price

0.65800

The Australian labor market showed further signs of weakness last Thursday, as the unemployment rate rose to 4.3% in June—above the expected 4.1%. Additionally, Employment Change for the same month came in at just +2K, well below the market forecast of +20K, suggesting a much softer-than-expected recovery in hiring momentum.

Coupled with this, the Melbourne Institute’s inflation expectations for July eased to 4.7%, down from 5% previously. The combination of softening inflation expectations and weakening labor market indicators is reinforcing speculation that the Reserve Bank of Australia (RBA) might opt for a rate cut in its upcoming policy meeting. Should the RBA proceed with a 25 basis point cut, the official cash rate would fall from 3.85% to 3.60%.

In response to these developments, rate futures are now pricing in around 64 basis points of total rate cuts by the RBA through the end of the year, an increase from the 56 basis points priced just a week earlier. Markets are also leaning toward the possibility of a rate cut as early as the next Monetary Policy Committee (MPC) meeting scheduled for August 12.

Across the Pacific, the U.S. Federal Reserve remains in the spotlight. Fed Governor Christopher Waller stated Thursday night that he still favors a 25-basis-point rate cut in July, citing mounting economic risks and noting that tariff-induced inflation is unlikely to drive persistent price pressures. He added that if core inflation remains subdued and economic growth shows further signs of slowing, additional rate cuts may become necessary. Waller emphasized that the Fed should not wait until labor market conditions deteriorate before taking action.

Meanwhile, Fed Governor Adriana Kugler noted that monetary policy may need to remain steady for some time, while San Francisco Fed President Mary Daly acknowledged ongoing efforts to restore price stability, indicating that the inflation battle is not yet won.

In a separate development, U.S. President Donald Trump denied rumors that he intended to dismiss Federal Reserve Chair Jerome Powell. Despite limited fresh headlines, recent U.S. economic data continues to support the Fed's current stance. The labor market remains strong, retail sales have improved, and Tuesday’s CPI report for June showed inflation trending closer to 3%, aligning with the Fed’s long-term targets.

According to CME’s FedWatch Tool, the probability of a 25 basis point rate cut in September now stands at 52.7%, down from 65.4% a week earlier. In contrast, the chance of rates remaining unchanged at the September meeting has increased to 46.0%, up from 29.7%. Downside Exhaustion Could Revive Bullish Momentum_1

Downside Exhaustion Could Revive Bullish Momentum_1

Technical Analysis

The AUDUSD pair has retreated toward the 0.6455 level after reaching a local high at 0.6596 on July 10. During this pullback, the Relative Strength Index (RSI) dropped to 29.53, briefly dipping below the oversold threshold. This suggests a potential rebound may emerge from current levels, particularly as the price is testing a descending trendline. If the trendline holds and is not broken decisively to the downside, it could serve as a launching point for a bullish reversal, with the next resistance target around 0.6578.

Meanwhile, the 100- and 200-period moving averages sit at 0.6532 and 0.6510 respectively. A daily close above these levels could help accelerate upside momentum. Conversely, a strong break below the descending trendline would undermine the current support structure and may trigger further losses, signaling a continuation of the bearish leg.

Trading Recommendations

Trading direction: Buy

Entry price: 0.6485

Target price: 0.6580

Stop loss: 0.6420

Validity: Jul 25, 2025 15:00:00

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Downside Exhaustion Could Revive Bullish Momentum

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