KVB Market Analysis | 7 August: AUD/USD Recovers Above 0.6500 Amidst RBA Hawkish Hold and Commodity Price Gains

Product: XAU/USD

Prediction: Increase

Fundamental Analysis:

XAU/USD extends Mondays losses and trades in the $2,380 price zone as markets abandon panic. On the one hand, stocks are in better shape after collapsing at the beginning of the week, with United States (US) indexes trading in the green after mixed results among their overseas counterparts. The better tone of equities undermines demand for Gold. On the other hand, government bond yields recovered, with the 10-year Treasury note yield up over 20 basis points (bps) after falling to fresh multi-year lows, supporting the US Dollar against the bright metal. Nevertheless, market players are still concerned about the United States (US) economic health and maintain bets on massive interest rate cuts before year-end.

Technical Analysis:

XAU/USD trades around the 50% Fibonacci retracement of its June/July rally at $2,388.70, and technical readings in the daily chart show that the risk is skewed to the downside. The pair met intraday buyers around the 38.2% retracement of the same run at $2,411.20, while the 20 Simple Moving Average (SMA) converges with the mentioned level, losing its bullish strength. In the near term, and according to the 4-hour chart, the bearish case is even stronger. Technical indicators resumed their slides within negative levels and after correcting oversold conditions. At the same time, the 20 SMA gains downward traction well above the current level, while XAU/USD keeps putting pressure on a mildly bullish 200 SMA.

Support levels: 2,372.90 2,366.00 2,352.40

Resistance levels: 2,411.20 2,424.10 2,438.80

Product: EUR/USD

Prediction: Increase

Fundamental Analysis:

Panic receded on Tuesday after dominating the first day of the week, helping the safe-haven US Dollar to recover some ground. The EUR/USD pair kept retreating from a fresh multi-month high of 1.1008 and traded near the 1.0900 threshold ahead of the United States (US) opening. Nevertheless, markets have not yet stabilised.

Technical Analysis:

From a technical point of view, the EUR/USD pair trades at around Friday‘s close, trimming Monday’s gains. The corrective slide may extend in the upcoming sessions, as technical indicators turned firmly lower, although the Relative Strength Index (RSI) indicator remains within positive levels, limiting the bearish case. Even further, EUR/USD develops above all its moving averages, with the 20 Simple Moving Average (SMA) advancing above the longer ones, in line with the dominant bullish trend. In the near term, and according to the 4-hour chart, the ongoing slide seems corrective. Technical indicators have retreated sharply from overbought readings and maintain their downward slopes within positive levels. At the same time, the 20 SMA keeps heading north above directionless 100 and 200 SMAs, but its partially losing its upward strength. A break through the 1.0890 support should anticipate another leg south, although buyers are likely to take their chances on dips.

Support levels:1.0890 1.0845 1.0800

Resistance levels: 1.0950 1.1005 1.1045

Product: USD/JPY

Prediction: Decrease

Fundamental Analysis:

This week Fed members attempted to instill calmness to the market, accepting that the job market has eased but cautions against reading too much into one labour report. The Fed has admitted that the risks of maintaining restrictive monetary policy are more finely balanced. Holding rates at elevated levels hinders economic activity, hiring and employment and so at some stage the fight against inflation can jeopardise the Feds employment mandate. The Fed is expected to announce its first rate cut since the hiking cycle began in 2022 but the discussion now revolves around the number, 25 bps or 50 bps？ Markets assign a 75% chance of a 50 bps cut which has amplified the downside move in USD/JPY.

Technical Analysis:

While the RSI remains well within oversold territory, this is a market that has the potential to drop for some time. The unravelling of carry trades is likely to continue as long as the Fed and BoJ remain on their respective policy paths. 140.25 is the next immediate level of support for USD/JPY but it wouldnt be surprising to see a shorter-term correction given the extent of the multi-week sell-off.

Product: AUD/USD

Prediction: Increase

Fundamental Analysis:

Following Monday‘s fresh 2024 lows near 0.6350, AUD/USD managed to regain some composure and advance north of 0.6500 the figure on turnaround Tuesday, returning at the same time to the positive territory on the weekly chart. The AUD’s initial focus, in the meantime, remains on the critical 200-day SMA at 0.6592. While below this region, the negative bias is expected to prevail in the pair. Tuesdays marked bounce in the Aussie dollar was also accompanied by an acceptable recovery in both copper prices and iron ore prices, regaining some mild upside traction amidst the ongoing multi-week retracement. Further strength around the Australian currency came after the RBA delivered a hawkish hold at its meeting early on Tuesday.

Technical Analysis:

The resurgence of the bearish tone could see AUD/USD revisit the 2024 bottom of 0.6347 (August 5), ahead of the 2023 low of 0.6270 (October 26). Bullish attempts, on the other hand, may face first resistance at the significant 200-day SMA of 0.6592, seconded by the temporary 100-day and 55-day SMAs of 0.6601 and 0.6643, respectively, before reaching the July high of 0.6798 (July 8) and the December top of 0.6871. The four-hour chart shows that some consolidation kicked in. That said, initial support comes at 0.6347, followed by 0.6338 and 0.6270. On the plus side, the initial barrier is at 0.6559, ahead of 0.6610 and the 200-SMA of 0.6649. The RSI rose to around 54.

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