This week, after the FOMC attributed the slow growth in Q1 and the winter months to transitory factors, it essentially told the market it is planning to raise rates this year. The timeline was unclear and although it did not rule out a June rate hike, we know its not likely to happen because it still needs to see further labor market improvement and a positive inflation trend back to 2.0%. Even if we get good data throughout this month, it won’t be enough. Instead, most projections call for a September rate hike.
The RBA on the other hand is not even close to considering a rate hike as it keeps the door open for a rate cut instead. The diverging central bank stances should keep the AUD/USD pressured and prevent it from turning bullish.
Indeed, as we head into the weekend, the AUD/USD looks like it is done with the bullish correction and ready to retest some key lows and perhaps revive the prevailing downtrend. Let’s first take a look at the 4H chart.
Take a look at the price action around 0.80 and 0.8050. There was a very strong bullish continuation candle after which price failed to extend higher. Instead AUD/USD fell below the lows from which that bullish candle sprung from. This type of price action reflects exhaustion. Indeed traders are now bringing the AUD/USD under a 2-week rising trendline from mid-April. The 4H RSI has broken below 40. These are signs that the bullish bias and momentum are lost.
In the daily chart, we can see that one possibility is that AUD/USD has formed a price bottom. However, it has not confirmed it, and we should be aware of the “expanded flat” scenario. This is when price makes lower lows and higher highs in a relatively flat market. This is a consolidation pattern, which means, the prevailing trend should still be respected.
As we start a new month, AUD/USD looks poised to at least test the 0.76 handle again if not the 0.7532 low and lower.
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