Forex Technical Update

USD Outlook for August: Political Impasse is a Drag (7/23)

Throwback Over?
- The 4H chart for the AUD/USD shows the market in consolidation after breaking above the 1.08 area, which provided resistance on 3 occasions in July. The break opens up the outlook to retest the record high near 1.1010.
- The consolidation had a slight bearish bias and reflects a throwback to retest the broken pivot. As we head into the US session, we see that the European session rejected the decline, forming a hammer candle. Now as we head toward the US session and the market appears to be picking up to the upside. A break above 1.0875 signals the bullish continuation scenario in the short-term (at least towards 1.1010).
- The daily chart shows the market in a strong push towards 1.1010, the high set in April. If the market cannot break this high, or clears it but fails to sustain the break, the AUD/USD can still have a leg down to complete an extended consolidation in the form of a flat. This flat correction scenario has a target back towards 1.4400.
- However, if the market can sustain a break above 1.1010, we have a range breakout projection to 1.1590, and swing projection to 1.1690.
Fundamental Factors:
- The recent Producer Price Index shows inflation pressure to have been higher in Q2. This sets the tone for high consumer inflation, and if this is true, the AUD has some upside as interest rate hike expectations would be moving earlier.
- The USD has its own mess. Even if the debt ceiling gets passed, the impasse in the US government can continue to pressure the USD. It will take sa period of very convincingly positive developments and headlines to get the USD back on track.

Will the RBA raise interest rates this year? Subscribe and become a member to share your views and join live discussions as well as webinars about the markets.

Fan Yang CMT
Chief Technical Strategist