AUD/USD nears 0.7900 as the US dollar sells off

  • The AUD/USD is trading close to the round 0.79 level as the US dollar is selling off.
  • An improved market mood replaces the fear that gripped the markets in the aftermath of the US inflation report.

The AUD/USD has made a massive shift to the upside, rising from the lows of 0.7773 to a high of 0.7889 and it is holding on to the highs.

The move to the downside was triggered by stronger than expected US inflation numbers. The US reported annual core inflation at 1.8%, better than 1.7% that was projected. Month over month, prices are up 0.3%, also ahead of expectations. Headline CPI also surprised to the upside with 2.1% y/y. The markets ignored disappointing figures in the retail sales report, and the dollar rose to higher ground. Stock futures dropped amid fears for a quicker pace of rate hikes. 

Fear waned as trading on Wall Street opened with modest drops, and they later turned positive. The mood further improved by a fall in the volatility VIX index below 20. This triggered a sell-off in the US dollar, reversing the previous move.

The next significant event on the economic calendar is the release of Australia's jobs report at 00:30 GMT. 

AUD/USD Technical levels to watch

The 30-minute chart shows the quick turnaround. The pair fell to the oversold territory as demonstrated by the RSI. Momentum also reached extreme levels and is now modestly higher. 

Immediate resistance awaits at 0.7890 which is forming as a double-top after an attempt to break higher earlier this week. Further above, the 0.7960 level is the last line before the round 0.8000 level. 

On the downside, 0.7850 provided support to the pair in recent days. It is followed by 0.7828 which was a swing low and then by the swing low that was seen earlier in the day: 0.7773. 

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