Fear returns before the appearance of inflation data next week
Last weekend was a reality check For investors who may have gotten a touch carried away with the supposed “dove pivot” of the Fed and turned a blind eye to the data and what the central bank policy makers are saying.
Perhaps the experience of the past 12 months could explain the latter, but there is no disregard for the data we saw on Friday. To make certain, the US economy isn't behaving as if it were in a recession. Instead, the market is so hot that the Fed may not be able to slow down as hoped.
because the UK prepares for a prolonged period of stagflation, the US is trying hard to avoid a tough landing. Inflation data next week may shed more light on whether the Fed is in a position to loosen the brakes in September or may have to push harder.
China's outlook on trade data
within the world's second largest economy, trade data for July are going to be released over the weekend, before inflation statistics on Wednesday. This was a month marked by the easing of pandemic restrictions, which may be reflected in the numbers.
generally , it's difficult to be optimistic about the Chinese economy. the govt continues its aggressive approach to tightening restrictions whenever there is an outbreak of the virus and the real estate sector in a free-fall, with liquidity dehydration and a 'mortgage rebellion' as homeowners refuse to repay loans on unfinished homes.
It doesn't take much imagination to imagine this crisis spilling over into the banking sector, which is rotated massively by nearly 300% of GDP. this is often even without including shadow banking. Consumer confidence is already at an rock bottom, reflecting these problems.
By extension, it's difficult to be optimistic about the Australian dollar - a country whose economic model depends entirely on China absorbing its commodity exports. Although the Federal Reserve Bank raises interest rates, the danger of fluctuating demand for Chinese goods is much greater - a risk that has narrowed iron ore prices.
AUD/USD Price Analysis: Technical Outlook
The AUD/USD daily chart depicts the pair below the confluence of the August 4th low and therefore the 50-day moving average around 0.6952. it's worth noting that earlier, the main price fell below the intersection of a five-month-old sloping trendline with the 20-day exponential moving average, around 0.6892, but it had been short-lived and rebounded towards the current exchange rates.
However, the AUD/USD tends to fall for some reasons: First, the Relative Strength Index (RSI) has just crossed its mid-line 50, which indicates that the sellers are gaining momentum. The second reason is that the last candle within the two days formed a bearish engulfing candle, which suggests that the sellers outperformed the buyers.
Therefore, rock bottom resistance path for AUD/USD is to the downside, and therefore the first support for the pair will be 0.6900. Once liquidated, the subsequent stop will be the 20-day moving average at 0.6892, followed by the 0.6800 mark.
