AUD/USD retested 0.7000 as a softer US dollar followed this week’s cooler inflation data, lifting the pair 2% off its monthly low. But a bearish flag and fading momentum point to a possible reversal, with traders now waiting on US retail sales.
The Australian dollar climbed back to the 0.7000 resistance level against the greenback, rebounding 2% from its lowest point this month as traders reset their Federal Reserve expectations. The move followed a softer US dollar, with no scheduled Australian macro data on the day.
A softer dollar drove the bounce
Investors sold the greenback after this week’s US consumer inflation report. The US Dollar Index (DXY) fell to 100.32, down modestly from the June high of 101.80.
The data gave them reason to. Headline and core consumer inflation dropped from 4.2% to 3.5% in June. The Producer Price Index also fell 0.3% on the month, easing from 6.0% to 5.5% year over year and missing the 6.2% estimate.
But the inflation picture faces a new threat. Since Donald Trump restarted his war against Iran, Brent and WTI crude benchmarks have risen, raising jitters that inflation could turn higher again.
Retail sales next in focus
With no scheduled Australian data on the calendar, traders now look to the upcoming US retail sales print. Economists expect the report to show retail sales grew 0.2% in June, a read on whether American consumer spending has held up.
Charts flag a possible reversal
The technical setup argues against the rally lasting. The pair bottomed at 0.6865 in June before bouncing to 0.7000, and it has formed a bearish flag pattern that often leads to a continuation. The Average Directional Index has dropped from 41 to 30, a sign the recovery has lost momentum.
FXStreet’s read is more constructive but also capped. It puts primary resistance at the 50-day EMA of 0.7012, with the 14-day RSI at 53.0 hinting at only modest bullish momentum. A drop below the channel could pressure the pair toward a nearly six-month low of 0.6833 set on March 30.
Sources: DailyForex, FXStreet
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