AUD/USD, USD/CAD, NZD/USD: An Engulfing Day for Commodity FX

Fed Holds Rates Steady and Signals Constraints on Policy Easing

There were no surprises in this week’s FOMC meeting—in fact, it went exactly as I expected. The Federal Reserve (Fed) kept policy unchanged and came across as less dovish than before. That’s not to say they were hawkish, but their reference to growing risks to both sides of their dual mandate—rising unemployment and persistent inflation—highlights just how constrained they are when it comes to rate cuts. There’s no talk of hikes yet, but if Trump’s trade war eventually justifies them, the Fed will need to signal it well in advance. With markets still trying to price in cuts, the Fed is likely to remain ‘less dovish’ than markets anticipate for now.

View related analysis:

Markets Pin Hopes on US–China Trade Talks to Lift Sentiment

Still, there are hopes that the US and China can hold constructive talks this weekend and lay the groundwork for trade deals. Trump has already suggested he intends to lower tariffs on China, but just by how much—and what China needs to offer in return—remains to be seen. So there’s a glimmer of hope in the air heading into the weekend, which could make or break sentiment come Monday once traders have seen the headlines.

US Dollar Gains as Bearish Reversals Emerge in Commodity FX and GBP/USD

The US dollar was the strongest major currency on Wednesday, buoyed by a less-dovish Fed, while commodity currencies—AUD, NZD, and CAD—were dragged lower alongside gold and oil. What’s particularly striking about the commodity FX space is that all three produced bearish engulfing candles on Wednesday, reinforcing my well-established view that their recent rallies are due for a pullback.

Elsewhere, GBP/USD formed a two-bar bearish reversal pattern known as a Dark Cloud Cover, which suggests we may have seen the formation of the ‘right shoulder’ in a head and shoulders top on the daily chart—just ahead of today’s Bank of England (BOE) meeting.

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

A bearish engulfing candle formed on AUD/USD on Wednesday, marking its most bearish session since April 4. That it occurred alongside a false break above the 0.65 handle, a daily close beneath the 200-day SMA (simple moving average), and a bearish RSI (2) divergence further supports the case for a pullback. I’m not expecting anything significant here, but a retracement towards the April VPOC (volume point of control) at 0.6370 seems feasible—and could be reached within one to two trading days, based on recent volatility.

Bears could look to enter on retracements towards the 200-day SMA at 0.6455 in anticipation of a further leg lower.

I'm also assuming that the Chinese yuan will continue to strengthen heading into the weekend, which may weigh further on AUD/USD. A break beneath the 0.6344 low would spell trouble for Aussie bulls.

NZD/USD Technical Analysis: New Zealand Dollar vs US Dollar

A bearish engulfing day formed on NZD/USD, which also confirmed a lower high beneath the recent peak. The price action could also be interpreted as a double top forming just below the November high, accompanied by a bearish RSI (2) divergence.

An ABC corrective pattern may also be unfolding. Wave equality (A = C) projects a target around the 200-day SMA and the 0.5894 low, while a 161.8% Fibonacci extension suggests that wave C could extend just above the 0.58 handle.

USD/CAD Technical Analysis: US Dollar vs Canadian Dollar

I have repeatedly highlighted the potential for a bullish reversal on the Canadian dollar (USD/CAD), and I believe we are as close as ever to one. Bearish momentum has clearly been waning on USD/CAD the past couple of weeks as bears make hard work of lower prices around the October and weekly VPOC. A bullish divergence ha also been forming.

The bias is simply for a move up to 1.40. Whether it gets there or beyond is once again down to Trump’s tariffs.

GBP/USD Technical Analysis: British Pound vs US Dollar

A potential head and shoulders (H&S) top is forming on the GBP/USD daily chart, which could be confirmed by a break beneath the neckline or the 1.3260 low. The pattern projects a target around 1.3080, although there are potential support levels to watch along the way—namely around the 1.3200 high and the monthly pivot point at 1.3158.

The H&S pattern would stand a much greater chance of success if the Bank of England (BOE) strikes a more dovish tone later today and if US–China trade talks conclude positively. That said, I’ve observed that few H&S patterns on the daily chart have reached their traditional measured targets in recent times. I see the potential for at least a move to 1.3200, but how far GBP/USD can fall from here really depends on the strength of the US dollar, particularly in relation to developments in Trump’s trade war.

Economic Events in Focus (AEST / GMT+10)

09:50 – BOJ monetary policy minutes
13:35 – Japanese 10year JGB auction
16:00 – German Industrial Production (MoM) (Mar)
21:00 - BoE Interest Rate Decision (-25bp cut expected)
23:30 – US Jobless Claims
23:15 – BOE Governor Bailey Speaks

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.