AUD/USD: Early Weakness Puts Multi-Year Bottoms at .6963 and .6921 on Radar

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James Hyerczyk

Sun, May 8, 2022, 9:28 PM 2 min read

The Australian Dollar is trading at a three-month low early Monday as traders reacted to a more than 1% drop in U.S. stock market futures, sending a clear signal to investors that risk is definitely off. Weighing on the Aussie is an overnight jump in the benchmark 10-year Treasury yield which stood at its highest level since 2018 at 3.1464%.

At 03:08 GMT, the AUD/USD is trading .7022, down 0.0052 or -0.74%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.25, down $0.25 or -0.35%.

Last week, the U.S. Federal Reserve hiked its benchmark funds rate 50 basis points and Friday’s strong U.S. Non-Farm Payrolls report reinforced bets on further big rate hikes. The Aussie is under pressure because investors are chasing the faster rising U.S. rates. Meanwhile, the Reserve Bank of Australia (RBA) is expected to raise its benchmark at a much slower pace.

Additionally, the U.S. futures markets are pricing a 75% chance of a 75 basis point rate hike at the Fed’s next meeting in June and more than 200 bps of tightening by year’s end. Unless this assessment changes dramatically, the greenback will continue to outperform the Aussie.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out last week’s low at .7030. A trade through .7266 will change the main trend to up.

The minor range is .7266 to .7005. Its retracement zone at .7136 to .7166 is resistance.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Monday is likely to be determined by trader reaction to .7074.

Bearish Scenario

A sustained move under .7074 will indicate the presence of sellers. Taking out the intraday low at .7005 will indicate the selling pressure is getting stronger. This could trigger a sharp break later today into the July 16, 2020 main bottom at .6963 and the July 14, 2020 main bottom at .6921.

Bullish Scenario

A sustained move over .7074 will signal the return of buyers. This will also put the AUD/USD in a position to form a potentially bullish closing price reversal bottom, but it will not change the main trend.

If this move takes place, we could see a late session rally into .7136 to .7166. Since the main trend is down, sellers could come in on the first test of this area.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire