AUD/USD bulls at a crossroads into the Jackson Hole showdown

• AUD/USD bulls are testing weekly resistance as the Australian and global economic recovery remains on track.
• The bearish best against the US dollar continues to mount as we head into the Jackson Hole.

AUD/USD is currently trading at 0.7235 and higher by 0.59% on the day having travelled between a low of 0.7187 and a high of 0.7239.

AUD/USD is on a collision course on a weekly basis as it moves into a firm area of supply dating back into winter 2018. 

However, its a toss-up between the bullish arguments such as a weaker dollar outlook for longer and Aussie dollar cycles which tend to last for a long time when they get going, (this one commenced in March of this year) vs the bearish case, such as risks to the global economic recovery. 

One of the most compelling bullish stories of late is derived from the Reserve Bank of Australia which is comfortable with the price of the currency rising. 

When you couple with this with an interest rate differential to the USD which the Aussie enjoys, as well as higher iron ore prices and improving landscapes for risk appetite, then there are plenty of bullish themes to support the currency higher.

Baring another shock to the global economy, the Aussie could be positioning for a continuation in the March bull cycle.

However, there will always be stumbling blocks along the way and high-frequency data of late has not been particularly promising. 

Earlier this week it was reported by the Australian Bureau of Statistics that the Australian total payrolls fell 1% in the four weeks to August 8th,  Victorian payrolls fell -2.8%. The ABS also released preliminary, unadjusted July data on international goods trade, which showed -6% for exports (after iron ore exports hit a record in June). 

In fact, economic activity in all of Australia’s states fell into the bottom left quadrant of the ANZ Stateometer in the June quarter, meaning all decelerated and grew at a below-trend rate.

Normally below-trend means state economies are still growing, but in the June quarter the moves were so sharp due to COVID-19, that the Stateometer signalled contraction across the states, analysts at ANZ Bank explained.

The analysts stated that this was consistent with their forecast for −5.6% gross domestic product growth in the June quarter.

The coronavirus crisis is a fluid situation, for not just Australia but the entire world and global economic risks remain skewed to the downside which leaves the Aussie’s lofty heights vulnerable to a sizeable correction.

At home, many domestic borders remained closed mainly because Victoria has suffered a second wave of COVID-19 cases.

Analysts at ANZ bank argued that with the Stage 4 lockdown in early August, Victoria’s economy is likely to have weakened further which could be a headwind for the currency already running deeper into the bear’s layer. 

The Jackson Hole to trim the greenback back down to size?

As for the US dollar, the Jackson Hole could be the nail in the coffin if there is an uber dovish tone in the Federal Reserve Chairs key-note speech.

Once again, the market will be on the look-out for any indications that the Fed is close to adopting Average Inflation Targeting and to better understand the conditions that would prompt Yield Curve Control.

The DXY is already looking to the bottom of the abyss and a break of 92.13 could spell the next leg of the bear dollar cycle, targeting 90.93.

On the other hand, a correction to the upside opens risk back to 94.80 ahead of a 38.2% Fib confluence above 96.00

AUD/USD bulls living dangerously 

From a technical point of view, the Aussie is perfectly placed for a textbook correction back to the June structure between 0.6950 and 0.7050. 

This brings in the 61.8% Fibonacci into scope on a weekly time frame analysis. 

From a daily perspective, however, 0.7135 is the last major support between a 0.7135 and 0.7185 supporting structure.

This is an area that bears will need to conquer in their quest for the weekly 61.8% target.