US Dollar Probes 6-Month High, AUD/USD Steady Into RBA

The US dollar index traded within three points of the 100 handle on Monday, closing at a six-month high. I outlined 100 as a potential upside target for bulls a few weeks back, and if momentum turns lower from here, it could mark wave C of a flat ABC correction. Still, this remains a pivotal area for both bulls and bears, with the ISM Non-Manufacturing and ADP reports setting the stage for a highly anticipated Nonfarm Payrolls (NFP) release on Friday.

Incoming data will shape Federal Reserve (Fed) policy expectations for December, following the relatively hawkish cut delivered last week. Fed funds futures currently imply a 67.3% chance of a cut — still reflecting confidence in further easing but well down from the ~90% probability priced in ahead of last week’s FOMC meeting. How upcoming US data lands will directly influence the dollar’s direction through traders’ confidence in that December cut.

View related analysis:

US Dollar Index (DXY) Technical Analysis

The daily chart shows a small shooting star candle forming just below the 100 handle. While textbooks often suggest this could mark a meaningful swing high, caution is warranted given key upcoming US economic events — meaning some wriggle room around the 100 handle should be factored in this week. However, with the daily RSI (2) overbought for a third day, a minor pullback could be due.

That said, with both the weekly and daily RSI (14) confirming the rally — and neither timeframe overbought — I suspect the US dollar index may still try to reach 101 before wave C completes. A weak NFP report, however, could quickly see Fed cut expectations repriced and send the dollar lower.

For now, I’m looking for a minor pullback on the daily chart, which could support the Australian dollar — particularly if the RBA delivers a relatively hawkish hold.

Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

Yield Spreads and Options Positioning Signal Limited Downside for the Aussie

The correlation between Australian yields and options positioning suggests the pullback for the Aussie could be limited. The 2-year yield continues to trend higher, and the AU-US 2-year yield spread has also climbed sharply ahead of AUD/USD. While the 1-day implied volatility for AUD/USD has risen to a three-day high, both the 1-week and 1-month implied volatility levels remain subdued. Furthermore, risk reversals indicate that call demand (bullish bets) continues to hold firm against put demand (bearish bets).

Chart prepared by Matt Simpson - data source: LSEG

Rickshaw Doji Hints at Waning Bearish Momentum in AUD/USD

The Australian dollar closed lower for a fourth day, though the rickshaw man doji suggests bearish momentum is waning. Monday’s low held above the September low, highlighting tentative support. With a shooting star candle forming on the US dollar index and the potential for the RBA to deliver a hawkish hold, my bias is for AUD/USD to stage a near-term bounce while the US dollar undergoes a minor pullback.

However, given my broader bias for the US dollar to push higher before wave C completes, any recovery in the Aussie may prove limited after the initial rebound.

Chart analysis by Matt Simpson - data source: TradingView AUD/USD

Key Economic Events for Traders (AEDT / GMT+11)

06:00 USD Fed Governor Cook Speaks, Loan Officer Survey (S&P 500, Nasdaq 100, USD/JPY)
11:30 JPY au Jibun Bank Manufacturing PMI (Oct) (USD/JPY, EUR/JPY, Nikkei 225)
14:30 AUD RBA Interest Rate Decision & Statement (Nov) (AUD/USD, AUD/JPY, ASX 200)
15:30 AUD RBA Monetary Policy Statement (AUD/USD, AUD/NZD, ASX 200)
18:40 EUR ECB President Lagarde Speaks (EUR/USD, EUR/GBP, DAX)
19:00 NZD RBNZ Financial Stability Report (NZD/USD, AUD/NZD, NZD/JPY)
21:00 EUR ECB President Lagarde Speaks (EUR/USD, EUR/GBP, DAX)
21:30 EUR German 2-Year Schatz Auction (EUR/USD, EUR/GBP, DAX)
22:35 USD FOMC Member Bowman Speaks (S&P 500, Nasdaq 100, USD/JPY)
23:00 EUR German Buba Balz Speaks (EUR/USD, EUR/GBP, DAX)
23:00 USD Milk Auctions (NZD/USD, AUD/NZD, NZD/JPY)

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.