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Trade of The Day – AUD/NZD

Facts: The pair is trading below a key resistance at 1.2086 AUDNZD sits below 100-period moving average

Recommendation: Trade: Short position on AUDNZD at market price Target: 1.1660 Stop: 1.2145

Opinion:

AUDNZD has been trading in an upward trend recently. However looking at the D1 interval, we can see that a potential trend reversal took place. The pair broke below the lower limit of 1:1 structure, which according to the Overbalance strategy heralds a bigger downward move. It seems that as long as the price sits below the 1.2086 resistance, one should expect the price to continue to fall. In addition the price sits below the 100-period moving average form D1 interval. We recommend going short AUDNZD at market price with a target of 1.1660. We also recommend placing a stop loss order at 1.2145.

Source: xStation5

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Chart of The Day – AUD/USD drops with inflation! The biggest hawk is folding its wings?

The Australian dollar is sliding today against all G10 currencies in response to lower-than-expected CPI inflation data in Australia (AUD/USD, AUD/NZD: -0.3%). Both the latest reading for June and the full Q2 report came in below 4%, delivering the Reserve Bank of Australia (RBA) the first fruits of months of aggressive interest rate hikes.

Technical Analysis: AUDUSD (D1)

AUDUSD is testing key levels amidst intensifying selling pressure. Defending the 50.0% and 61.8% Fibonacci retracements is essential to prevent a deeper decline toward the 0.6900 area. A move below the yellow buffer zone (0.68800–0.69000) would signal a decisive return of the downtrend, potentially exacerbated by further disinflation in Australia. The RSI remains near the neutral 50 level, leaving room for further bearish pressure. The only hope for the bulls remains a very dovish signal from the Fed and a return above the 100-day EMA (dark purple). However, this scenario seems unlikely given the strong US labor market (stable unemployment, record-low jobless claims), rising PMI readings, and Warsh’s uncompromising stance on above-target inflation.

Source: xStation5

What is driving the AUDUSD decline today?

  • Inflation drops below 4% : Australia’s annual CPI inflation rate fell to 3.8% YoY in June from 4.0% in May, dropping 0.1% month-on-month. In the second quarter, inflation slowed to 0.6% QoQ (4.0% YoY) compared to 1.4% QoQ in Q1. Crucially for the RBA, trimmed mean inflation came in at 3.6% YoY (0.8% QoQ), falling below the central bank’s forecast (3.8%).
  • Cheaper fuel saves the reading: The main dampening factor was a nearly 11% drop in fuel prices in June, translating into disinflation in transport and goods. On the other hand, the housing sector weighed heavily (+6.8% YoY), where new home construction costs jumped 5.8% YoY due to higher material and labor costs. Furthermore, services inflation accelerated to 4.0% YoY, pointing to ongoing domestic price pressures in the economy.
  • Market wipes out rate hike expectations: The swap-market-implied probability of an August rate hike in Australia dropped to zero. In fact, expectations fell across all time horizons. Interest rates in Australia are currently the highest among all G10 economies (4.35%). The last rate hike occurred in May, while subsequent months brought dovish signals from the RBA governor, who indicated that the current rate level is a good place to take a breather.

The market no longer pricing in a full interest rate hike in Australia until March 2027. Pricing from last week indicated a move in February with near certainty (blue line), whereas currently, we are approaching the flat curve from a month ago, which signaled a pause alongside hopes at the time for an end to the Middle East conflict. Source: XTB Research.

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British Pound gains ground as US Dollar struggles ahead of Fed decision

  • GBP/USD gains as the US Dollar declines amid high uncertainty for the Fed’s upcoming rate decision.
  • Middle East geopolitical tensions and persistent US inflation risks could provide underlying support for the Greenback.
  • The Bank of England is widely expected to hold rates at 3.75% after June inflation slowed to 2.6%.

GBP/USD edges higher after remaining flat in the previous day, trading around 1.3300 during the Asian hours on Wednesday. The currency pair gains ground as the US Dollar (USD) struggles ahead of the Federal Reserve’s (Fed) upcoming policy decision.

While the central bank is widely expected to leave interest rates unchanged, traders are currently pricing in an unusually high 30.5% chance of an immediate rate hike, signaling notable uncertainty ahead of the announcement. Looking further ahead, markets are factoring in a 76.6% probability of a rate increase in September, reinforcing expectations that borrowing costs will remain elevated for longer.

Despite its current weakness, the Greenback may find support from renewed hostilities in the Middle East. Re-ignited geopolitical tensions are keeping investor focus firmly on potential inflationary risks and the broader interest rate outlook in the United States.

Meanwhile, investors are also eyeing the Bank of England’s (BoE) upcoming policy decision later this week, where interest rates are widely anticipated to hold steady at 3.75%. This outlook is supported by recent inflation data showing annual consumer price growth slowed to a 15-month low of 2.6% in June, falling below the Bank of England’s previous projections.

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EUR/JPY Price Forecast: Eyes rising wedge top at 187.00

  • EUR/JPY could find primary resistance around the rising wedge top at 187.00.
  • The 14-day Relative Strength Index around 60 maintains a bullish bias.
  • The primary support lies at the nine-day EMA of 186.18.

EUR/JPY moves little after registering modest gains in the previous day, trading around 186.60 during the Asian hours on Wednesday. The currency cross is maintaining a bullish near-term tone as it holds above both the nine-period and 50-period Exponential Moving Averages (EMAs). The alignment of short- and medium-term EMAs below price suggests ongoing upside pressure.

Additionally, the 14-day Relative Strength Index (RSI) around 60 keeps a constructive bias without yet signaling overbought conditions. However, the daily chart technical analysis shows that the EUR/JPY cross is remaining within a rising wedge, indicating a strong bearish reversal risk.

The EUR/JPY cross may test the initial resistance at the upper boundary of the rising wedge around 187.00. A successful break above the wedge could support the currency cross to target the all-time high of 187.95, which was recorded on April 17.

On the downside, the primary support lies at the nine-day EMA of 186.18, followed by the lower boundary of the rising wedge around 185.60 and the 50-day EMA at 185.39. A break below this confluence support zone could cause a bearish emergence and put downward pressure on the EUR/JPY cross to navigate the region around the five-month low of 181.87, recorded on March 16, and the seven-month low of 180.81.

EUR/JPY: Daily Chart
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Euro advances as US Dollar declines ahead of Fed policy decision

  • EUR/USD climbs as the US Dollar weakens ahead of the Fed’s anticipated interest rate hold.
  • Traders price in an unusually high 30.5% chance of an immediate rate hike, signaling rare policy uncertainty.
  • The ECB is expected to deliver a rate hike in September.

EUR/USD holds ground for the second successive day, trading around 1.1390 during the Asian hours on Wednesday. The US Dollar (USD) struggles against the Euro (EUR) as investors are closely monitoring the Federal Reserve’s (Fed) upcoming policy decision, where the central bank is widely expected to leave interest rates unchanged.

Traders are currently pricing in a 30.5% chance of an immediate rate hike, an unusually high level of uncertainty so close to a policy announcement. Looking further ahead, markets are also factoring in a 76.6% probability of a rate increase in September, reinforcing expectations that borrowing costs could remain elevated for longer.

The US Dollar (USD) may find support amid renewed hostilities in the Middle East, which have reignited geopolitical tensions, keeping investor focus firmly on inflationary risks and the broader interest rate outlook in the United States (US).

Geopolitical risk escalated sharply after the IRGC launched a surprise ballistic missile strike targeting a US military base in Jordan at approximately 5:45 PM ET. US Central Command reported that defense systems successfully intercepted all incoming missiles, preventing casualties and structural damage. Believed to be a direct countermeasure to recent US strikes against Iranian naval assets, the incident triggered immediate retaliation; CENTCOM subsequently executed precision airstrikes in Iraq aimed at neutralizing Iran-backed groups planning operations against US forces and Saudi energy infrastructure.

The European Central Bank (ECB) unanimously kept interest rates on hold at 2.25% on July 23, but strongly signaled a September rate hike. Leadership revealed that several Governing Council members pushed for an immediate increase, warning that sustained high energy prices risk driving up broader inflation through second-round effects.

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Canadian Dollar remains on the front foot as USD bulls turn cautious ahead of Fed decision

  • USD/CAD remains on the defensive for the second straight day amid a combination of factors.
  • Rebounding oil prices underpin the Loonie and weigh on the pair amid subdued USD demand.
  • The downside seems limited amid US-Iran tensions and ahead of the key FOMC rate decision.

The USD/CAD pair is seen consolidating around the 1.4100 mark during the Asian session as traders keenly await the outcome of a two-day FOMC policy meeting, due later this Wednesday. Investors will look for fresh cues about the US Federal Reserve’s (Fed) future policy path, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh impetus to the currency pair.

In the meantime, the USD remains on the defensive below a one-month top, touched on Tuesday, as bulls turn cautious heading into the key central bank event risk. Furthermore, a solid recovery in crude oil prices from an over two-week low underpins the commodity-linked Loonie and turns out to be another factor acting as a headwind for the USD/CAD pair. However, persistent geopolitical uncertainties should support the safe-haven Greenback and limit the downside for the currency pair.

In fact, Iran’s Islamic Revolutionary Guard Corps (IRGC) launched multiple ballistic missiles at US forces in the Middle East on Tuesday. Separately, Central Command said the US military and Saudi Arabian forces conducted joint strikes against Iran-aligned terrorists in Iraq. Moreover, President Donald Trump issued a fresh warning that the US will return to strong military action, targeting key Iranian infrastructure, if diplomatic efforts do not bring a rapid resolution to the crisis in the Middle East.

This marks a fresh escalation of tensions in the Middle East and triggers a fresh leg up in crude oil prices, reviving inflation fears and bolstering bets for at least one interest rate hike by the Fed in 2026. This marks a significant divergence in comparison to the Bank of Canada’s (BoC) dovish bias, which should cap the Canadian Dollar (CAD). Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent USD/CAD recovery from a one-month low has run out of steam.

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United States Dollar Index (DXY) flat below 101.50 as bulls await FOMC amid Iran risks

  • DXY bulls remain on the sidelines ahead of the crucial FOMC decision later this Wednesday.
  • Persistent geopolitical uncertainties continue to act as a tailwind for the safe-haven buck.
  • Rebounding oil prices revive inflation fears and Fed rate hike bets, favoring bullish traders.

The United States Dollar Index (DXY), which tracks the Greenback against a basket of currencies, is seen consolidating below the 101.50 level during the Asian session as traders await the outcome of a two-day FOMC meeting, due later this Wednesday. The Index, however, retains a bullish undertone near an over one-month high, touched on Tuesday, and seems poised to appreciate further amid persistent geopolitical uncertainties.

Iran’s Islamic Revolutionary Guard Corps (IRGC) launched a surprise attack and targeted US forces in the Middle East with multiple ballistic missiles late Tuesday. Furthermore, President Donald Trump once again warned that the US will return to strong military action against Iran if diplomatic efforts do not bring a rapid resolution to the crisis. This fuels concerns about a fresh escalation of tensions in the region and prompts traders to price in the geopolitical risk premium, which should act as a tailwind for the safe-haven US Dollar (USD).

Meanwhile, the latest developments trigger a sharp rally in crude oil prices, reviving inflation fears and raising prospects for an interest rate hike by the US Federal Reserve (Fed). This might further hold back traders from placing aggressive bearish bets on the DXY and warrants some caution before positioning for deeper losses. The upside, however, seems capped as investors opt to wait for the crucial FOMC policy decision, due later today. Investors will look for more cues about the Fed’s future policy path, which should provide a fresh impetus to the USD.

Economists at DBS highlight that investors remain “highly cautious about the upcoming FOMC meeting (decision due 30 July 2am, SGT),” noting that the recent “pause in US-Iran hostilities did prompt a correction lower in crude oil prices” but has not materially eased policy concerns. According to DBS, the market is still “assigning 34% odds that the Fed would hike this week and close to 100% odds for the meeting in September,” underscoring persistent expectations that the Fed will resume tightening even as near-term geopolitical risk premia in oil have partially unwound.

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Australian Dollar falls to one-week low vs Yen as soft CPI triggers heavy selling

  • AUD/JPY attracts heavy selling following the release of soft Australian consumer inflation figures.
  • Intervention fears prompt some JPY unwinding and further contribute to the steep intraday slide.
  • The wide interest rate gap between Japan and Australia holds back bears from placing fresh bets.

The AUD/JPY cross extends this week’s retracement slide from the 114.65 zone, or its highest level since June 3, and attracts some follow-through selling for the second straight day. The intraday decline picks up pace following the release of soft Australian consumer inflation figures and drags spot prices to an over one-week low, around the 113.60 region, in the last hour.

Data published by the Australian Bureau of Statistics (ABS) showed the Consumer Price Index (CPI) increased by 3.8% year-over-year (YoY) in June, compared to a 4% growth reported in May and consensus estimates. Adding to this, the monthly print missed forecasts and fell for the second straight month, by 0.1% in June. The softer CPI report prompted traders to unwind expectations for a near-term Reserve Bank of Australia (RBA) rate hike and weighs heavily on the Australian Dollar (AUD).

The Japanese Yen (JPY), on the other hand, draws support from growing speculations that authorities will step in to prop up the domestic currency. This turns out to be another factor that exerts downward pressure on the AUD/JPY cross and contributes to the steep intraday decline. However, the persistently wide interest rate gap between Japan and other major economies, including Australia, holds back JPY bulls from placing aggressive bets and helps limit further losses for the currency pair.

Furthermore, economic risks stemming from the Middle East crisis warrant some caution before confirming that the AUD/JPY cross has topped out in the near-term and positioning for further losses. Investors might also opt to wait for the crucial Bank of  Japan (BoJ) policy decision on Friday before placing fresh directional bets. This, in turn, suggests that any subsequent slide might still be seen as a buying opportunity and is more likely to remain limited amid mixed fundamental cues.