The recent beat in the non-farm payrolls (NFP) data, coupled with concerning factors such as a higher unemployment rate and reduced average weekly hours, has resulted in a depreciation of the USD. The market has begun to readjust its previously hawkish outlook to a less hawkish one, as a looser labour market has the potential to bring the inflation rate even lower. Additionally, the miss in the ISM Services PMI, particularly in the lower prices paid sub-index, has made some to speculate that core inflation could start to normalise in the near future.

Regarding the big miss in US jobless claims last week, the market took it with a pinch of salt, considering the influence of seasonal adjustments. On a positive note, continuing claims improved even further, indicating that workers can find new employment relatively quickly after getting unemployed. Overall, the significant shift towards a hawkish stance seen in May, driven by the hot economic data, has recently begun to reverse. This reversal can be attributed to the expressed preference of Federal Reserve members to skip the June rate hike and the recent disappointing economic data.

AUDUSD Technical Analysis – Daily Timeframe

AUDUSD Daily

On the daily chart, we can see the huge rally in the AUDUSD pair soon after the failed breakout of the 0.6563 support level. The price has now come all the way back to the previous strong resistance level at 0.6780 which is likely to be key in determining the next direction for the pair. We either see a breakout and another rally or a strong rejection.

AUDUSD Technical Analysis – 4 hour Timeframe

AUDUSD 4 hour

On the 4 hour chart, we can see how the pullbacks for the AUDUSD pair have been shallow as the market priced out all the hawkishness priced in in May. The moving averages are crossed to the upside indicating a clear uptrend and we should see the red 21 moving average acting as dynamic support for the next pullback. If we look left, we can also notice how the divergences with the MACD at key levels turned into big reversals. Now we have another one right when we are trading into the strong 0.6780 resistance, so this may be a signal for a bigger correction incoming.

AUDUSD Technical Analysis – 1 hour Timeframe

AUDUSD 1 hour

On the 1 hour chart, we can see more closely the big divergence that’s been going on since the 0.66 level. The price has been trading upwards within a rising channel and when these types of divergent channels break, we can generally see a big correction all the way back to the base of the channel, which in this case would be the 0.66 level. If we see the price breaking above the 0.6780 resistance, we can expect more buyers piling in and extending the rally towards new highs. The sellers, on the other hand, will want to see the price breaking out of the channel and below the 0.6730 support zone to jump onboard and target the 0.66 handle.

This week is filled with many important events, beginning with the release of the US CPI report today. This report should influence expectations for tomorrow's FOMC rate decision and also for the next meetings. The most straightforward scenarios are likely to be a rally in the AUDUSD pair if the CPI data misses across the board as that would make the market to price out the probabilities for a July hike. On the other hand, if the CPI beats on all fronts, we should see the pair selling off and validate the bearish setup. The market focus is likely to be on the Core CPI, making it the most crucial metric to monitor today.

Later in the week, we have the release of the US Jobless Claims report and the University of Michigan consumer sentiment survey. In the previous release of the consumer sentiment survey, there was a significant surge in long-term inflation expectations, which had a substantial impact on the hawkish market pricing. Therefore, if we see a miss there, it would be viewed as positive news for the AUDUSD bulls.

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