The US dollar was in demand on Wednesday after Fed Chair Jerome Powell cast doubt on a November rate cut. While the greenback strengthened, the Japanese yen showed contrasting behaviour, setting up divergent trade opportunities on AUD/USD and AUD/JPY.
View related analysis:
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- US Dollar, Japanese Yen, New Zealand Dollar: COT Report Analysis
- Australian Dollar Outlook: AUD/USD Under Pressure Ahead of CPI and PMIs
Australian Dollar Divergence: AUD/USD Falls, AUD/JPY Rises
The US dollar was broadly higher on Wednesday after Jerome Powell’s speech, as traders failed to hear the dovish signal for a November cut they had been hoping for. Powell acknowledged downside risks to employment but stressed that inflation has risen, remains elevated, and that policy is not on a pre-set course. This prompted further unwinding of US dollar short bets, lifting USD/JPY by 0.8%, USD/CAD by 0.5%, while EUR/USD slipped 0.6%. The New Zealand dollar led commodity FX lower, with NZD/USD down 0.7% and eyeing a bearish breakout below the August low near 0.58. AUD/USD also posted a bearish outside day, suggesting its next leg lower could be underway.
Chart prepared by Matt Simpson, data source: LSEG
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
The Australian dollar snapped a 3-week winning streak last week, and prices are now trading just beneath Friday’s low. I had expected a bit more of a bounce from AUD/USD, but instead the Aussie is toying with another leg lower following Wednesday’s bearish outside day which also doubles up as a shooting star candle. The upper wick respected the July high as resistance to hint at an important swing high over the near term.
It is also interesting to note that the past four days has seen AUD/USD open a close between the 0.6508 low and monthly R1 pivot, which has effectively kept the open and close range between 0.6500
- Bears could seek to fade into moves towards the monthly R1 (0.6601) and retain a bearish bias while prices remain beneath Wednesday’s high (0.6628).
- The 50-day EMA (0.6551) and 50-day SMA (0.6538) could make an interim target for bears
- A break beneath the 50-day averages brings the 65c handle into focus for bears, near the monthly pivot point and 0.6483 swing low.
Chart analysis by Matt Simpson - data source: TradingView AUD/USD
AUD/JPY Technical Analysis: Australian Dollar vs Japanese Yen
Earlier this week I highlighted a potential bounce from the 97.40 area before AUD/JPY embarked on another leg lower. The bounce has played out, but it seems premature for bears to assume the Australian dollar will roll over against the Japanese yen without a fresh, volatile catalyst.
Wednesday’s 0.6% gain was the pair’s best day in nine sessions and its most volatile in five weeks. The rally also completed a three-day bullish reversal (Morning Star formation), with Tuesday’s inverted hammer finding support at a confluence of technical levels including the 20-day EMA, a high-volume node (HVN), and the July high.
Given the overall strength of the trend, the correction now looks complete. AUD/JPY bulls may be eyeing a breakout above the recent cycle high, with the 99.00 handle in focus. A break above the year-to-day high (YTD) at 99.17 would bring the 100.00 level firmly into view.
Chart analysis by Matt Simpson - data source: TradingView AUD/JPY
Key Economic Events for Traders (AEST / GMT+10)
09:50 JPY Corporate Services Price Index, Monetary Policy Meeting Minutes (USD/JPY, EUR/JPY, Nikkei 225)
14:00 GBP Car Registration (Aug) (GBP/USD, EUR/GBP, FTSE 100)
14:00 EUR German Car Registration, French Car Registration (Aug) (EUR/USD, EUR/GBP, DAX)
16:00 EUR GfK German Consumer Climate (Oct) (EUR/USD, EUR/GBP, DAX)
16:45 EUR French Consumer Confidence (Sep) (EUR/USD, EUR/GBP, CAC 40)
17:30 CHF SNB Interest Rate Decision, Monetary Policy Assessment (USD/CHF, EUR/CHF, CHF/JPY)
18:00 CHF SNB Press Conference (USD/CHF, EUR/CHF, CHF/JPY)
18:00 EUR ECB Economic Bulletin, M3 Money Supply, Loans to Non-Financial Corporations, Private Sector Loans (Aug) (EUR/USD, EUR/GBP, DAX)
18:30 HKD Exports, Imports, Trade Balance (Aug) (USD/HKD, HKD/JPY, Hang Seng)
20:00 GBP CBI Distributive Trades Survey (Sep) (GBP/USD, EUR/GBP, FTSE 100)
22:20 USD Fed Goolsbee Speaks (S&P 500, Nasdaq 100, USD/JPY)
22:30 USD Continuing Jobless Claims, Core Durable Goods Orders, Core PCE Prices, Corporate Profits, Durable Goods Orders, Durables Excluding Defense, GDP, GDP Price Index, (S&P 500, Nasdaq 100, USD/JPY)
22:30 CAD Average Weekly Earnings (Jul) (USD/CAD, EUR/CAD, CAD/JPY)
23:00 USD Fed Schmid Speaks, FOMC Member Williams Speaks (S&P 500, Nasdaq 100, USD/JPY)
00:00 USD Existing Home Sales (Aug), FOMC Member Bowman Speaks (S&P 500, Nasdaq 100, USD/JPY)
00:30 USD Natural Gas Storage (WTI Crude, Brent Crude, USD/CAD)
01:00 USD KC Fed Composite Index, KC Fed Manufacturing Index (Sep) (S&P 500, Nasdaq 100, USD/JPY)
03:40 USD Fed Logan Speaks (S&P 500, Nasdaq 100, USD/JPY)
05:30 USD FOMC Member Daly Speaks (S&P 500, Nasdaq 100, USD/JPY)
