Technical Analysis

AUD/USD Price Analysis – July 04, 2024

By LonghornFX Technical Analysis
Jul 4, 20244 min

Daily Price Outlook

During the European trading session, the AUD/USD currency pair maintained a bullish stance, consolidating around the 0.6716 level and reaching an intraday high of 0.6722.

The upward momentum was driven by multiple factors, including positive Australian economic data, particularly encouraging Retail Sales figures for May, which bolstered expectations of a potential rate hike by the Reserve Bank of Australia (RBA).

This provided substantial support to the Australian dollar (AUD). Additionally, the US dollar (USD) weakened as markets increasingly priced in the likelihood of Federal Reserve (Fed) interest rate cuts, further enhancing the AUD/USD pair's gains. Moreover, risk-on sentiment in the markets also contributed to the pair's upward movement.

Impact of Strong Australian Economic Data on AUD/USD Pair

On the AUD front, the Australian Dollar (AUD) rose following stronger-than-expected Retail Sales data for May, boosting expectations of a potential rate hike by the Reserve Bank of Australia (RBA).

The robust growth in Retail Sales suggests economic strength, prompting discussions that the RBA might consider raising interest rates as soon as August. This positive economic indicator has bolstered confidence in the AUD, reflecting market optimism about Australia's economic outlook amidst global uncertainties.

On the data front, Australia's Retail Sales for May showed a 0.6% month-on-month increase, up from 0.1% previously, as reported by the Australian Bureau of Statistics (ABS) on Wednesday.

The Australian Dollar's strength was also supported by slight improvements in Judo Bank's Australia Purchasing Managers Index (PMI) for June.

Therefore, the stronger Retail Sales and improved economic outlook have lifted the AUD/USD pair, fueled by expectations of potential RBA rate hikes and positive market sentiment towards Australia's economy.

Impact of US Economic Data and Fed Stance on AUD/USD Pair

On the US front, the previously released weaker-than-expected economic data continues to weigh on the US dollar, which was seen as another key factor that kept the AUD/USD pair higher.

However, Federal Reserve (Fed) officials' cautious stance could strengthen the USD and limit gains in the AUD/USD pair. Chicago Fed President Austan Goolsbee remarked early Thursday that achieving 2% inflation will require time, highlighting ongoing economic uncertainties.

Meanwhile, the recent minutes from the FOMC's June meeting revealed that Fed policymakers lack confidence in the need for an immediate interest rate cut, preferring a data-dependent approach to monetary policy.

Markets now anticipate a 66% probability of a 25 basis points Fed rate cut in September, up slightly from earlier expectations.

On the economic front, the private sector added 150,000 jobs in June, slightly less than expected and down from 157,000 in May. At the same time, more people filed for unemployment benefits, reaching the highest level in 2-1/2 years, showing weakening job market conditions.

Furthermore, the Services Purchasing Managers' Index (PMI) for June dropped to 48.8, signaling a contraction in the services sector and hitting its lowest point since May 2020, much lower than predicted.

Therefore, the weaker US economic data and cautious Fed stance could support the AUD/USD pair, while signs of job market weakness and a contracting services sector in the US may limit the pair's upside trend.

AUD/USD Price Chart - Source: Tradingview
AUD/USD Price Chart - Source: Tradingview

AUD/USD - Technical Analysis

The AUD/USD pair is currently trading at $0.67156, marking a modest gain of 0.11% in the early trading session. The 4-hour chart reveals pivotal technical levels that traders should watch closely.

The pivot point at $0.6733 is critical, acting as a potential fulcrum for either a bullish continuation or a bearish reversal. Immediate resistance levels are seen at $0.6749, $0.6767, and $0.6787.

Breaking above these resistance levels could open the path for further upward momentum, challenging higher price territories.

Conversely, support levels are identified at $0.6701, with subsequent supports at $0.6680 and $0.6655.

These levels could offer buying opportunities should the price experience a pullback. Technical indicators provide a mixed outlook; the Relative Strength Index (RSI) is currently at 66, nearing the overbought zone.

An RSI close to 70 typically indicates overvaluation, suggesting a possible bearish correction in the near term.

The 50-day Exponential Moving Average (EMA) stands at $0.6663, reinforcing a bullish sentiment as long as the price remains above this average. The EMA acts as dynamic support, and maintaining a price above this level could sustain the bullish bias.

Given the current market setup, a conservative trading strategy would be to enter a long position if the price breaks above $0.67008.

Setting a take-profit target at $0.67321 aligns with the pivot point, ensuring a favorable risk-reward ratio while capturing potential upside movement. A stop-loss at $0.66809, just below immediate support, limits downside risk from unexpected price dips.

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