FUNDAMENTAL ANALYSIS
Jason Cheung
AUD/USD
The Australian Dollar rose 0.56% over the past week to trade at 0.6859 as the pair attracted dip-buyers from the recessionary fears that spread in previous weeks. US wages growth remains strong as non-farm payrolls added 372,000 jobs to the US economy while the unemployment rate remained steady at 3.6%. This will continue to motivate the Fed to steeply increase interest rates to tame inflation. It’s predicted that the next rate hike will most likely be 75 basis points in the Fed’s July meeting. Iron ore prices, Australia’s top export, fell by 1.22% to trade at $113.74/ton, after crisis conditions over China’s steel mills have weakened demand. Currently, supply chain issues in China and inflation are projected to weigh down on the AUD/USD pair. Next week, the US CPI data for June will be announced, and analysts have forecast it to increase from 8.6% from 8.8%, and many believe that interest rates haven’t helped to reduce inflation.
EUR/USD
Over the past week, the EUR/USD pair has declined sharply by 2.31% to trade at 1.018 after the release of US non-farm payrolls data. Euro bearishness continues after maintenance continues on the Nord Stream 1 gas pipeline, which provides a significant source of natural gas from Russia to Germany and into the Eurozone. The maintenance has become a potential risk for Germany and the EU, as there are fears that Russia could stop transporting gas or send lower volumes than requested. As a result, Germany has begun dimming lights and rationing the use of hot water in an attempt to reduce their consumption of natural gas. It seems that in the short-term, many other European countries will follow in Germany’s footsteps by continuing to ration these goods in order to combat the commodity shortage. Next week, US retail sales, consumer sentiment and CPI data will be released, so it will be interesting to see if there are any dip buyers to facilitate a short-term rally on EUR/USD or if it will continue its bearish move.
TECHNICAL ANALYSIS
Jason Chen
AUD/USD
The Australian Dollar ended the week around 0.56% higher at 0.685. However, throughout the week it tested the support at around 0.676 multiple times whilst continuing to trade below its short-term 30-day simple moving average, suggesting possible further downside. Despite a small mid-week rally on the back of the RBA’s announcement of another 50 basis point increase to the cash rate, this action reversed over the last 2 trading days of the week to leave the Australian Dollar trading near its 52-week lows. Another technical indicator pointing towards the further downside of the Australian Dollar is the adjusted overbought level of the Relative Strength Index. Although an RSI above 70 is usually considered overbought territory, during a period of a downtrend, traders tend to use an RSI of 50 to indicate overbought territory. Over the previous week, the RSI crept from the low 40s to around the 50 mark, potentially indicating that the AUD is approaching overbought territory. This will likely cause the AUD to further test the 0.676 support level over the coming week.
EUR/USD
After having a brief reprieve from its freefall in recent weeks, the Euro continued its decline in the last trading week, falling 2.35% to 1.019 at the close of trading on Friday. On Friday, the Euro tested an interim support level which seemed to have formed at around 1.007 before recovering slightly. After spending almost the entire week in oversold territory, with the 4-hour RSI being below 30 and reaching 20 on some occasions, it closed the week at 41.17 after a late flurry of buying action near the close of trade. It is evident from the price action of the Euro that it is trading within the confines of a downward Andrews’ pitchfork pattern, breaking below the median line (shown in grey). With the US jobs report on Friday showing an unchanged unemployment rate and a non-farm payroll increase above market expectations, another tough week for the Euro could be ahead with the Euro set to retest the S3 pivot point at 1.016 before potentially targeting parity with the greenback.