- Bulls run up to a key level on the charts and a correction could be in order.
- AUD/USD W-formation on the 4-hour time frame is a compelling feature.
AUD/USD is flat in the first hour of Asian trade on Friday as it moves in on extremes of a broadening formation on the charts, but fundamentally, the stock markets o Wall Street and a softer US dollar have been a driver as well as a hawkish central bank. AUD/USD rallied to 0.6937 from a session low of 0.6858.
On Wednesday Reserve Bank of Australia, (RBA) Governor Philip Lowe emphasised higher rates with the Australian government bond futures have also started to price in higher rates. Yields on most government bonds up about 10 basis points since the start of the week.
Global stock markets are also supportive of the Aussie and are on track for a fifth straight session of gains. The euro was up in and the greenback down in choppy trading after the European Central Bank raised interest rates for the first time in more than a decade as it tries to combat inflation. The ECB rose by 50 bps and it also introduced a bond protection plan, called the Transmission Protection Instrument (TPI), that is designed to cap borrowing costs across the region.
Another thorn in the side of the US dollar, Wall Street's main indexes climbed on Thursday boosted by a late-afternoon rally and gains in heavyweight growth stocks, including Tesla. The tech-heavy Nasdaq added 1.4% to lead the gains while the S&P 500 closed at its highest level since June 9. The Dow Jones Industrial Average climbed 0.5%.
Meanwhile, despite a risk on tone in financial markets, the concerns over Europe's gas supply, fresh wobbles in China's property market and the detection of foot-and-mouth viral fragments in imported meat products in Australia could be a weight going forward.
Additionally, traders will wait anxiously for the US Federal Reserve meeting next week where policymakers are expected to raise interest rates by 75 basis points to curb runaway inflation. There will also be a focus on crucial second-quarter US Gross Domestic product data, which is likely to be negative again. Two-quarters of negative GDP growth would mean the United States is in a recession, which has been a supportive factor for the greenback for its safe haven qualities. If stocks stumble on a bad outcome, the Aussie will potentially follow suit.
AUD/USD technical analysis
The price is meeting a broadening formation extreme and the W-formation on the 4-hour time frame is a compelling feature as well which could see the price revert to test the neckline and 15-min price bar lows if bears stay committed. 0.6890 is eyed in that regard.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.