AUD/USD struggles around 0.6980s on risk-off mood and before Fed meeting

• AUD/USD tumbles due to downbeat sentiment and a stronger greenback.
• US Consumer confidence deteriorates further, while housing data reveals that prices are slumping.
• AUD/USD Price Analysis: Neutral to downward biased, could test the 20-day EMA in the near term.

The AUD/USD slides for the first time in the week, retracing from last week’s high around 0.6983, falling below the 50-day EMA at 0.6969, amidst a dampened market mood, courtesy of US companies complaining about high prices while traders prepare for July’s FOMC meeting.

The AUD/USD is trading at 0.6935, after hitting a 0.6983 daily high, but tumbled as sentiment deteriorated during the day, reaching a daily low at 0.6921, before settling at current price levels.

AUD/USD capped by deteriorated sentiment ahead of Fed’s decision

Several factors worth mentioning weighed on market sentiment. Walmart cut its profit outlook in the year ahead and mentioned double-digit inflation in food prices as one of the reasons, dragging US equities lower. That, alongside EU countries agreeing to reduce gas consumption while Russia reduces gas flows to Europe, increased the chances of the bloc getting into a recession.

In the meantime, a light US calendar, led by the CB Consumer Confidence, dropped to its lowest level since February 2021, from 98.7 to 95.7. Lyn Franco, senior director of economic indicators at the Conference Board, said, “Concerns about inflation -- rising gas and food prices, in particular -- continued to weigh on consumers.” Furthermore, she added, “looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”

Earlier, housing data showed that prices are falling nationwide, as the Federal Housing Financial Agency revealed. Meanwhile, the Richmond Fed Manufacturing Index for July stood at 0, better than June’s -11, while the Dallas Fed Services Index in July recovered some ground to -10.9 vs. -12.4 in June.

What to watch

The Australian economic docket will feature CPI figures, awaited to increase more than the RBA’s forecast, as TDS analysts wrote. “Our headline forecast implies the peak is likely to exceed the RBA’s 7% year-end target, warranting at least a 50bps Aug policy rate hike. We see upside risks to our forecast.”

On the US front, the US economic docket will feature the Durable Good Orders, Retail Inventories, and Pending Home Sales ahead of the FOMC monetary policy decision.

AUD/USD Price Analysis: Technical outlook

The AUD/USD is neutral-to-downward biased, despite having broken the 20-day EMA. Tuesday’s price action tested the 50-day EMA but tripped down as sellers stepped in around that area, which also intersects with a four-month-old downslope trendline, acting as resistance. Hence, the AUD/USD fell, but it was capped by the Relative Strength Index (RSI) resilience to cross below its 7-day RSI’s SMA, which would trigger a selling signal that could send the AUD/USD lower.

The AUD/USD first resistance would be 0.7000. A breach of the latter could pave the way for further gains, and the target could be the 100-day EMA at 0.7130. On the other hand, if the AUD/USD resumes downwards, its first support would be 0.6900. Once cleared, the next stop would be the 20-day EMA at 0.6842.