AUD/USD, ASX 200 Analysis: The US dollar falls after Powell’s testimony

Market summary

Jerome Powell told congress that rates will need to move higher to tame inflation via lower growth, adding that the speed (of hikes) was more important at the start but not important now
Wall Street pulled back for a third day although the lack of bearish follow through suggests some were expecting something more hawkish from Powell
An intraday double bottom formed on the S&P 500 ~4360 and the Nasdaq 100 held above 14,800
The US dollar was the weakest FX major
- EUR/USD closed to a 6-week high and is less than 20 pips from testing 1.1000
- USD/CAD closed to a 9-month low
- USD/CHF formed a likely swing high around 0.9000 ahead of today’s SNB meeting
- AUD/USD formed a bullish hammer day
Stubbornly high UK inflation keeps the pressure on an already-hawkish BOE, with core CPI a 31-year high of 7.1% y/y (0.8% m/m)
- The 1-year OIS (overnight index swap) now fully pricing in a 5.75% interest rate, which leaves room for five 25bp hikes from the current 4.5%
- GBP/USD spiked up to our initial 1.028 resistance zone, before reversing and retesting Tuesday’s low as traders mulled the increasing likelihood of a hard landing for the UK economy
Strong retail sales data for Canada has increased bets the BOC could hike again in July and sent USD/CAD to a 9-month low
Australia’s Treasurer announced that they intend to finalise the appointment of the next RBA governor by July

Events in focus (AEDT):

09:50 – JP foreign investment, BOJ member Noguchi speaks
18:00 - SNB meeting
21:00 - BOE meeting

ASX 200 at a glance:

A bearish inside day formed on the ASX 200 daily chart
This snapped a 7-day winning streak
Weak lead from Wall Street points to a soft open
7300 is likely pivotal area for bulls/bears today

AUDUSD daily chart:

After three bearish days and a bullish pinbar (which closed within a key resistance zone), I suspect it may be time for AUD/USD to post a minor rebound at a minimum. The hammer’s lower wick also formed around a volume cluster from the prior rally, so any intraday pullback towards 0.6770 could be of interest if it forms a swing low. We’re now looking for a breakout and potential move to 0.6850, with a move back to last week’s highs being a nice bonus for bulls.

However, if we see bearish momentum form below 0.6800, then we could see AUD/USD head back towards the 0.6700 handle.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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