- Sustained USD sell bias helps AUD / USD regain positive traction on Friday.
- New nerves surrounding COVID-19 and cautious sentiment limits gains for the higher perceived risk AUD.
- The formation of a shoulder-head-shoulder pattern warrants caution for the bulls.
The pair AUD/USD moves higher during the European session on Thursday, recovering part of the losses of the previous day and approaching the region of 0.7750. At the time of writing, the pair is slightly back to the 0.7735-40 region.
After an initial drop to a week and a half lows, the pair has captured new purchases near the region of 0.7690 and now it has recovered a significant part of the negative movement of the previous day. The rebound is due to the emergence of some new sales around the US dollar, which remains under pressure amid speculation that the Fed will keep interest rates low for a longer period.
The market now seems convinced with the view that any increase in inflation is likely to be temporary and has been lowering their expectations of a tightening of the Fed’s monetary policy earlier than anticipated. This has been evident from the fact that USD bulls ignored the upbeat data from the initial US jobless claims on Thursday and have also not seemed impressed by a modest rally in US Treasury yields. USA
Having said that, a softer tone in the stock markets could limit any uncontrolled upward movement for the Australian dollar higher perceived risk. Investors have become cautious amid renewed fears about another dangerous wave of coronavirus infections in some countries. Risk sentiment has been further affected by the news that the Biden administration wants an increase in capital gains tax.
Even from a technical perspective, the recent price action constitutes the formation of a bearish shoulder-head-shoulder pattern on intraday charts. This makes it wise to wait for some solid continuation buys before positioning yourself for additional profit. Conversely, sustained weakness below the 0.7700-7690 region will reaffirm the bearish pattern and make the AUD / USD vulnerable to further slide.
Market participants are now awaiting the US economic calendar, highlighting the release of preliminary PMI manufacturing and services figures. The data will offer a new perspective on how the economy is performing. This, coupled with broader market risk sentiment, should give AUD / USD some momentum and allow investors to seize short-term opportunities on the last day of the week.
AUD / USD technical levels