AUD/USD, ASX 200 drift higher ahead of AU retail sales: Asian Open

Volatility levels were lower, as one would expect with the UK and US on a public holiday Monday. The US dollar mildly extended Friday’s losses which allowed al majors except the yen to drift higher during quiet trade. Call me pessimistic, but I don’t fully trust the moves. And we should also factor in ‘month end flows’ which can throw a few spanners into the works of pretty charts.

GBP/USD reached a 2-month high as the pound continues to benefit from freshly-announced election and hot inflation figures, which kills minor hopes of a June BOE rate cut. Commodity FX also benefitted with NZD/USD also closing at a 2-month high, thanks to the RBNZ’s surprisingly hawkish meeting last week. AUD/USD rose for a second day whilst USD/CAD retraced lower for a second day. USD/JPY continued to trade within a tight range, with 157 seemingly being its latest glass ceiling which beckons to be broken.

Gold drifted higher in line with my cautiously bullish bias outlined on Friday, yet I am also on the lookout for  a swing high and for losses to push prices down to 2300 minimum (a break beneath which brings 2280 into focus).

Crude oil rose alongside gold for a second day thanks to the softer US dollar. Ultimately there has been little news to drive markets, which seems to be simply taking the US dollar’s direction as their key driver.

Economic events (times in AEST)

Australian retail sales may garner some attention, given they previously contracted -0.4% to weigh on AUD/USD. In fact, the combination of soft retail trade, weak China PMIs, and a stronger US dollar sent AUD/USD down a -1.3% by the close. While China’s PMIs are not released until later this week, we do have a couple of FOMC members (Bowman, Mester) speaking alongside SNB's Jordan and ECB's Schnabel later this afternoon, which brings the potential for some volatility. Should FOMC members continue to push back on rate cuts, AUD/USD may hit resistance and try to realign with its bearish momentum of last week.

• 11:30 – Australian retail sales (ABS)
• 14:55 – FOMC Bowman, Mester, SNB Jordan and ECB Schnabel speaks
• 15:00 – Japan’s BOJ core CPI
• 16:00 – German WPI
• 23:55 – FOMC member Kashkari

View key events and levels for the week:

AUD/USD weekly outlook: May 26, 2024

AUD/USD technical analysis:

The Australian dollar managed to break above Friday’s bullish engulfing day on Monday and notch up its second bullish day in a row. Yet, for now, the move higher is assumed to be a retracement against last week’s bearish candle, which formed below trend resistance and another false break above 67c.

Should retail sales surprise to the upside, AUD/USD could extend its lead as bets of RBA cuts diminish further. Although, I continue to suspect that any move higher is still part of a retracement before bearish momentum returns. The daily RSI (2) is not quite in overbought territory, but it should reach it if prices move higher today.

The 1-hour chart shows prices are consolidating above 0.6650 and prior support, and the strong trend structure of this timeframe could favour bulls who seek dips for a potential move to 0.6680 (which sits near the 20-day average range band and weekly S1 pivot point). However, prices are rising whilst volumes decline, which suggests the move is lacking new buyers. Therefore, I am also on the lookout for any bearish reversal patterns around resistance levels and will also keep an eye on the US dollar index for signs of a trough to identify any potential bearish reversal on AUD/USD.

ASX 200 at a glance:

• Monday’s trade say the ASX 200 recoup most of Friday’s losses and snap a 4-day losing streak
• 10 of its 11 sectors rose (led by real estate, telecoms) and energy was the one to fall
• 88% of the stocks advanced, 8% declined, 4% remained unchanged
• The ASX200 is on track for a bullish inside month, yet seemingly lacks the appetite to retest its highs

ASX 200 futures (SPI 200) technical analysis:

The strong rally on May 16th appears to have been a "last hurrah" from the bulls, as it marked a false close above 7900 before momentum eventually turned lower. While a bullish inside day formed on Monday and prices continued higher overnight ahead of today's open, I doubt its potential to retest 7900 for now.

Like AUD/USD, the ASX has risen on lower volumes which suggests an underlying weakness to the supposed rally. The bearish candle in the final hour of trade also serves as a warning for bulls, given it could also be a lower high beneath Thursday's high and a 61.8% Fibonacci level.

The bias is for a move lower, and to fade into pops higher with a stop above 7860, with 7800 and 7784 making potential downside targets for bears.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge