AUD/USD Eyes November High; RSI Approaches Overbought Territory

— Written by David Song, Currency Analyst

Key Points:

–Post-FOMC AUD/USD Rally Eyes November High (0.7778); RSI Grinds Towards Overbought Territory.

– GBP/USD Struggles as U.K. Announces ‘Brexit’ Deadline; Preserves Bullish Formation Ahead of CPI.

Chart – Created Using Trading View

• AUD/USD extends the rally from earlier this month as the Federal Open Market Committee (FOMC) continues to forecast a terminal fed funds rate close to 3.00%, and the pair appears to be on its way to test November high (0.7778) especially as the Relative Strength Index (RSI) breaks of the bearish formation carried over from the previous month; however, the aussie-dollar exchange rate may continue to operate within the 2016-range should the oscillator mark another failed attempt to push into overbought territory.
• The Reserve Bank of Australia (RBA) meeting minutes may generate limited interest as GovernorPhilip Lowe appears to be in no rush to lift the official cash rate from the record-low, and the central bank may continue to endorse a wait-and-see approach as ‘growth in household income remains low;’ moreover, the RBA may strike a similar tone to its major counterparts and reiterate underlying price growth is expected to ‘be a bit more gradual’ as headline inflation is largely driven by higher energy prices.
• With that said, speeches by the slew of FOMC voting-members (Chicago Fed President Charles Evans, New York Fed President William Dudley, Chair Janet Yellen, Minneapolis Fed President Neel Kashkariand Dallas Fed President Robert Kaplan) may ultimately support the near-term outlook for AUD/USD as the central bank tames interest rate expectations and is widely expected to retain the current policy at the next interest rate decision on May 3; nevertheless, fed fund futures currently highlight a greater than 50% probability for a move on June 14 as Fed officials continue to project three to four rate-hikes for 2017.
• Even though the near-term outlook for AUD/USD remains constructive, the pair may follow a similar path from late-2016 as it comes up against the Fibonacci overlap around 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion), with a failed attempt to break/close above the topside hurdle raising the risk for a near-term exhaustion; first level of support comes in around 0.7650 (38.2% retracement) followed by the former-resistance zone around 0.7590 (100% expansion) to 0.7600 (23.6% retracement).

Chart – Created Using Trading View

• GBP/USD pulls back from a fresh monthly high of 1.2435 as the U.K. plans to trigger Article 50 of the Lisbon Treaty on March 29, with the broader outlook tilted to the downside as price & RSI preserve the bearish trends carried over from late-2016.
• Nevertheless, the key data prints coming out of the region may support the recent series of higher highs & lows in the pound-dollar exchange rate as the Consumer Price Index (CPI) is anticipated to show a pickup in headline & core inflation, while Retail Sales are expected to rebound in February.
• The 8 to 1 split at the Bank of England’s (BoE) March meeting may pave the way for a larger dissent as officials reiterate ‘there are limits to the extent that above-target inflation can be tolerated,’ but the push may not last as board member Kristin Forbes concludes her tenure at the end of June; may see Governor Mark Carney largely anchor interest rate expectations and endorse a balanced tone at the next meeting on May 11 as officials argue ‘monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.
• Failure to push above the Fibonacci overlap around 1.2460 (61.8% expansion) to 1.2500 (38.2% retracement) may undermine the recent series of higher highs & lows in the exchange rate, and GBP/USD may continue to operate within the holding pattern carried over from December amid the series of failed attempts to close below the 1.2100 (61.8% expansion) handle.

(DailyFX)