Categories: Markets

AUD/USD volatile, but likely to fall further while below 0.7000

AUD/USD volatile, but likely to fall further while below 0.7000
  • AUD/USD tumbled in the middle of Powell’s speech.
  • The hourly harmonic pattern is bearish and the focus is on the downside while below 0.7000.

Jerome Powell’s aggressive speech has sent a bid to the US dollar and rattled financial markets with stocks down and bond yields higher. Given its high beta status, the Aussie fell hard, losing around 35 pips. At the time of writing this report, the AUD/USD trades again at 0.699, recovering all losses about 15 minutes after the speech, but fell to as low as 0.6951. He is trading back towards the high of the day, 0.7005.

The Federal Reserve relies on the data and Powell said that although the US economy is clearly slowing, he maintains that it still has strong underlying momentum. For example, and crucially, Powell explained that while “lower July inflation readings are ‘welcome,'” they are “far from what will be needed before we are confident that inflation is coming down.”

Markets were looking for clues as to whether the Federal Reserve was satisfied with the less inflationary results of the latest data, but Powell’s speech shows no evidence of that. He said that “as policy tightens further, it will be convenient to stop the pace of rate hikes at some point”, but that is somewhere on the horizon. Instead, he argues that “restoring price stability will probably require the maintenance of a restrictive policy for ‘some time'”. Consequently, Fed funds futures show that the odds of a 75 basis point hike in September are now 56.5%, up from 46.5% prior to Powell’s speech.

Meanwhile, the US dollar is consolidating the move around the lows. The DXY, an index that measures the greenback against a basket of currencies, is down 0.6%, losing territory at 108,753, marking a low of 107,588 so far today. If the bears are still in play, the AUD should find it difficult to go much higher and remain under pressure below 0.70.

AUD/USD technical analysis

The hourly harmonic pattern is bearish and the price is meeting resistance in a supply zone around the 78.6% Fibonacci level of the XA range. Meanwhile, support is seen at 0.6970-0.6950. A cascading sell-off below there towards 0.69 could be expected.

Source: Fx Street