Technical Analysis

AUD/USD Price Analysis – May 21, 2024

By LonghornFX Technical Analysis
May 21, 20244 min

Daily Price Outlook

During the European trading session, the AUD/USD currency pair maintained its upward trend and remained well-bid around the 0.6669 level, hitting the intraday high of 0.6676. The reason for its upward trend could be attributed to the hawkish RBA minutes and a slight decline in the US Dollar.

The Reserve Bank of Australia recently discussed the possibility of raising interest rates further due to concerns that inflation might remain high for an extended period. This underpinned the AUD currency and contributed to the gains in the AUD/USD pair.

Furthermore, the risk-on market sentiment, backed by the belief that the Federal Reserve will cut interest rates in the US, was seen as another key factor that underpinned the riskier Australian dollar and extended gains for the AUD/USD pair.

Mixed Signals Impacting AUD/USD Amid Fed Rate Cut Speculations and Inflation Concerns

Despite hints from Federal Reserve (Fed) officials suggesting a more hawkish stance on interest rates, the US Dollar is still facing challenges and remaining under pressure. Traders are betting on rate cuts in September, with a 61% chance according to the CME FedWatch tool.

This probability has decreased from 65% recorded just a week ago. The AUD/USD pair may see upward pressure if the US Dollar weakens due to expectations of rate cuts in September, despite hints of a hawkish stance from Fed officials.

On the flip side, Cleveland Fed Bank President Loretta Mester warned that inflation risks are increasing, suggesting that reducing interest rates three times this year might not be the right move. She emphasized the importance of keeping interest rates the same and highlighted the need to gather more information before deciding on any changes.

Reserve Bank of Australia's Hawkish Tone Boosts AUD/USD Pair

Another factor boosting the AUD/USD pair was the Reserve Bank of Australia (RBA) minutes from the May meeting, indicating policymakers' discussions about potential interest rate hikes due to concerns over prolonged high inflation risks. This development strengthens the Australian dollar as it contrasts with expectations of US rate cuts.

The market perceives the RBA's consideration of further rate increases as a positive signal for the Australian economy, enhancing demand for the Aussie asset. However, global economic uncertainties and fluctuations in risk sentiment could temper the currency's strength.

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

AUD/USD - Technical Analysis

The AUD/USD pair is currently trading at $0.66614, down 0.15% in the 4-hour timeframe. This modest decline reflects the prevailing cautious sentiment in the market, as traders weigh the impacts of global economic data and central bank policies. Key technical levels are crucial for understanding potential price movements.

The pivot point is set at $0.6650, acting as a critical benchmark for traders. Immediate resistance levels are identified at $0.6682, followed by $0.6711 and $0.6746. These resistance levels indicate potential barriers to upward movement, suggesting areas where selling pressure might intensify.

On the downside, immediate support is noted at $0.6618, with further support levels at $0.6586 and $0.6559. These support levels are essential for preventing further declines, offering potential rebound points if the market faces downward pressure.

The Relative Strength Index (RSI) is at 43, indicating a slightly bearish sentiment but still within the neutral range. This level suggests that the AUD/USD is neither overbought nor oversold, allowing for possible fluctuations based on upcoming market data.

The 50-day Exponential Moving Average (EMA) is positioned at $0.6676. Currently, the price is trading below this level, hinting at a bearish outlook in the short term. However, if the price moves above the 50-day EMA, it could signal a shift towards a more bullish trend.

Conclusion: The recommended trading strategy is to buy above $0.66505, with a take profit target at $0.66923 and a stop loss at $0.66284.

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