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AUD/USD Enters the Overbought Zone – Traders Brace for Retracement! 


The AUD/USD pair closed at 0.73655, after placing a high of 0.73668 and a low of 0.72527. The AUD/USD pair extended its gains of the previous day, rising for the 4th consecutive day on the back of the broad-based US dollar weakness, due to the dovish comments by Jerome Powell. On Friday, the AUD/USD pair reached its highest level since December 2018, posting gains for the 5th consecutive month.

During the first half of Friday, the US dollar was weak, as the dovish comments by Powell and the Federal Reserve's new strategy hit investors with an unexpected move. The shift in monetary policy, to boost employment and tolerance for higher inflation, exerted heavy selling pressure on the US dollar.

The greenback was down because the chairman of the Federal Reserve, Jerome Powell, stated that the Fed would aim for an average inflation rate of 2%, raising hopes for a prolonged period of loose monetary policy and weighing on the local currency. The US Dollar Index fell to 92.8 on Friday, putting pressure on the greenback, and ultimately lending support to the AUD/USD pair's upward momentum on Friday.

Meanwhile, the relationship between Australia and China remained under observation by the traders, as the deputy head of mission at China's embassy in Australia, Wang Xining, said at the National Press Club that China saw Australia's move for an investigation as unfair because Australia assumed that the virus had originated in Wuhan.

Australia helped lead the push for an investigation into the origin of the coronavirus, as the outbreak in Victoria has spread throughout Australia, causing damage to the Australian economy. However, in response, a Chinese diplomat said that Australia had offended the Chinese people.

The international support for the investigation was otherwise strong. The governing body of the WHO, the World Health Assembly (WHA), eventually adopted a European Union resolution, co-sponsored by China and Australia, that called for a comprehensive, independent, and impartial investigation.

China is Australia's largest trading partner, and their relationship has deteriorated since Australia called for an investigation into the origin of the coronavirus. However, these updates failed to stop the ongoing upward momentum in the AUD/USD pair on Friday.

Furthermore, the tensions between China and the US also remained on the back foot on the last day of the week, as no updates were reported from either side, which kept the market sentiment supportive, keeping the AUD/USD pair higher.

On the data front, no macroeconomic data was released from Australia on Friday. However, from the US side, at 17:30 GMT, the Core PCE Price Index dropped to 0.3% in July, against the expectations of 0.5%, weighing on the US dollar. In July, personal spending rose to 1.9% from the projected 1.5%, favoring the US dollar.

At 18:05 GMT, the Chicago PMI figures that were released remained flat, at the projected 51.0 for August. At 19:00 GMT, the Revised UoM Consumer Sentiment rose to 74.1, compared to the anticipated 72.8, favoring the US dollar. Despite the supportive US macroeconomic data on Friday, the AUD/USD pair remained higher on the board, as the US dollar was weak, due to a policy shift by the Fed.

Daily Technical Levels

Support Resistance

0.7342 0.7406

0.7309 0.7437

0.7279 0.7470

Pivot point: 0.7373

The AUD/USD trading at the 0.73level, and it has now entered the overbought zone, but now it's looking to take a bearish retracement in the market. On the lower side, the AUD/USD may find support at 0.7320, which marks a 38.2% Fibonacci retracement level. The resistance remains at the 0.7380 level. The MACD also suggests a selling bias. The idea is to open a selling forex trading signal in the AUD/USD pair, to target levels of 0.7320 and 0.7285. Good luck!

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