AUD/USD bears step in at a critical level of confluence

• RBA was a short-lived revival in the Aussie as US traders walk in from long weekend. 
• AUD/USD bears back in charge and target 0.74 the figure as US dollar firms. 

AUD/USD is currently trading at 0.7490 and off by 0.45% near the lows of the day at 0.7580 after sliding from a high of 0.7598 despite a hawkish hold from the Reserve Bank of Australia. 

It is once again a US dollar story as the US currency firms while fuller markets get to work following the long weekend break as the US returns from the 4th July holidays.  

Markets are still digesting Friday’s US Nonfarm Payrolls jobs report which led to a bout of profit-taking in the greenback.

The US dollar has pretty much recouped most of its losses already as illustrated in the following daily DXY chart:

DXY daily chart

Friday's high near 92.741 is still intact but on a break of there, bulls will be hunting down the 93 areas ahead of the March 31 high near 93.437.  A -272% Fibo retracement of the correction comes in at 92.95 as the first port of call to test the bear's commitments. 

Fed's tapering timing is in question

The consensus surrounding the report's implications for the Federal Reserve's timing of tapering is mixed.

However, there now appears to be a firmer sentiment from traders backing the greenback that the Fed will be fully committed to tapering sooner rather than later.

''There were some aspects to the report that warrant caution but we don't think the data did anything to make the Fed pause,'' analysts at Brown Brothers Harriman argued.

''What might make the Fed pause is significantly slower jobs growth in July and August, but we won't know that for weeks still. For now, we fully expect taper talk at the Fed to advance.''

Meanwhile, the market is awaiting more confirmation clues from the Federal Open Market Committee minutes tomorrow. Tapering discussions officially began at this June 15-16 meeting and traders will be looking for firmer opinions on when tapering will begin. 

A more hawkish spin from them should underpin the greenback, especially in the wake of disappointing data from Europe on Tuesday which tarnished the allure for the euro ( by far, the largest component of the DXY index, making up almost 58 per cent (officially 57.6%) of the basket).

Central banks are the driver, RBA hawks-up a notch

AUD was firmer in Asian and European markets due to the RBA announcing that it would pare the pace of its bond-buying campaign from September followed by a mid-November review of its policies. 

RBA's Governor Phillip Lowe explained that the economy had surprised on the upside.

However, the hawkishness stopped there as the central bank said rate hikes will not be on the cards until 2024.

Lowe reasoned that while there had been a significant improvement in the economy, that this hasn’t yet passed through to wages and inflation.  He also doubled down and explained that the bank will continue buying bonds until “there is further material progress” toward its goals for full employment and inflation.  

Overall, this leaves AUD somewhat stalemate vs currencies of nation's where central banks are already or are about to remove accommodation, such as the US, UK, Canada, NZ and Norway. 

However, as analysts at Brown Brothers Harriman point out, ''the eurozone, Japan, Switzerland, and Sweden were all struggling with deflation before the pandemic and so their recoveries are shaping up to be more vulnerable and spottier. As a result, they are nowhere near removing accommodation.''

This makes a favourable case for long AUD vs such currencies of those nations still reeling due to slower economic recovery progress. 

AUD crosses technical analysis

Keeping with the theme of central bank divergence, we can take EUR/AUD as an example. 

EUR/AUD daily chart

The pair shot lower on the RBA and sliced open the horizontal support.

The price has failed to break the 61.8% Fibonacci retracement so far that would be expected to hold as a confluence area of resistance which opens risk to the downside. 

A restest of the prior support and failure would open the prospects of filling the daily wick and lead to a downside continuation towards 1.5580. 

AUD/USD daily chart analysis

Meanwhile, as for AUD/USD, the analysis at BBH, noting the Aussies earlier strength, said a break above 0.7650 would likely signal a deeper recovery to the June 11 high near 0.7775.  

However, in the meantime, the greenback is back in favour which leaves the downside exposed while below the 50% mean reversion and 10-day EMA confluence in the 0.7530s towards 0.74 the figure: