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Title : AUDUSD retreats further from multi-week high amid pickup in USD demand

November 9,2022 05:29 AM ET


On Wednesday, the AUDUSD pair faces some selling pressure, extending the overnight pullback from the mid-0.6500s, its highest level since September 23. The pair fell to the 0.6470 area during the first half of the European session and seems to have put an end to a three-day winning streak despite a slight rise in the dollar.

In fact, the dollar index stages a nice rebound from the seven-week low reached the previous day and is supported by a combination of factors. Despite the reduction in bets for a more aggressive tightening of monetary policy by the Fed, markets continue to price in at least a 50 basis point rate hike in December.

This continues to support elevated U.S. Treasury yields and help revive demand for dollars. This, along with a further leg down in equity markets, provides additional support for the dollar as a safe haven and helps to shift flows away from the risk-sensitive Aussie.

Adding to this, some not-so-hawkish comments from Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock are weighing on the domestic currency. Speaking about the economic outlook, Bullock noted that there is good reason to believe that we are approaching the inflation peak of this cycle.

From a technical standpoint, the pair is at a critical juncture. The AUDUSD price has reached a long-term downtrend line going back to the August highs and has tracked the price lower since then.

A break above the trendline and neckline, confirmed by a close and open above them at 0.6510, would lead to a strong rally, with targets at 0.6640, 0.6740, and eventually even 0.6870 if the pattern's suggested targets are met as expected. Conversely, a pullback below the aforementioned confluences of resistance would raise doubts about a bullish breakout. Furthermore, a move lower and a break below 0.6330 would negate the potential of the reverse H&S pattern and likely lead to volatile selling.

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