US Dollar Probes 6-Month High, AUD/USD Steady Into RBA

The US dollar index traded within three points of the 100 handle on Monday, closing at a six-month high. I outlined 100 as a potential upside target for bulls a few weeks back, and if momentum turns lower from here, it could mark wave C of a flat ABC correction. Still, this remains a pivotal area for both bulls and bears, with the ISM Non-Manufacturing and ADP reports setting the stage for a highly anticipated Nonfarm Payrolls (NFP) release on Friday.

Incoming data will shape Federal Reserve (Fed) policy expectations for December, following the relatively hawkish cut delivered last week. Fed funds futures currently imply a 67.3% chance of a cut — still reflecting confidence in further easing but well down from the ~90% probability priced in ahead of last week’s FOMC meeting. How upcoming US data lands will directly influence the dollar’s direction through traders’ confidence in that December cut.

View related analysis:

US Dollar Index (DXY) Technical Analysis

The daily chart shows a small shooting star candle forming just below the 100 handle. While textbooks often suggest this could mark a meaningful swing high, caution is warranted given key upcoming US economic events — meaning some wriggle room around the 100 handle should be factored in this week. However, with the daily RSI (2) overbought for a third day, a minor pullback could be due.

That said, with both the weekly and daily RSI (14) confirming the rally — and neither timeframe overbought — I suspect the US dollar index may still try to reach 101 before wave C completes. A weak NFP report, however, could quickly see Fed cut expectations repriced and send the dollar lower.

For now, I’m looking for a minor pullback on the daily chart, which could support the Australian dollar — particularly if the RBA delivers a relatively hawkish hold.

Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

Yield Spreads and Options Positioning Signal Limited Downside for the Aussie

The correlation between Australian yields and options positioning suggests the pullback for the Aussie could be limited. The 2-year yield continues to trend higher, and the AU-US 2-year yield spread has also climbed sharply ahead of AUD/USD. While the 1-day implied volatility for AUD/USD has risen to a three-day high, both the 1-week and 1-month implied volatility levels remain subdued. Furthermore, risk reversals indicate that call demand (bullish bets) continues to hold firm against put demand (bearish bets).

Chart prepared by Matt Simpson - data source: LSEG

Rickshaw Doji Hints at Waning Bearish Momentum in AUD/USD

The Australian dollar closed lower for a fourth day, though the rickshaw man doji suggests bearish momentum is waning. Monday’s low held above the September low, highlighting tentative support. With a shooting star candle forming on the US dollar index and the potential for the RBA to deliver a hawkish hold, my bias is for AUD/USD to stage a near-term bounce while the US dollar undergoes a minor pullback.

However, given my broader bias for the US dollar to push higher before wave C completes, any recovery in the Aussie may prove limited after the initial rebound.

Chart analysis by Matt Simpson - data source: TradingView AUD/USD

Key Economic Events for Traders (AEDT / GMT+11)

06:00 USD Fed Governor Cook Speaks, Loan Officer Survey (S&P 500, Nasdaq 100, USD/JPY)
11:30 JPY au Jibun Bank Manufacturing PMI (Oct) (USD/JPY, EUR/JPY, Nikkei 225)
14:30 AUD RBA Interest Rate Decision & Statement (Nov) (AUD/USD, AUD/JPY, ASX 200)
15:30 AUD RBA Monetary Policy Statement (AUD/USD, AUD/NZD, ASX 200)
18:40 EUR ECB President Lagarde Speaks (EUR/USD, EUR/GBP, DAX)
19:00 NZD RBNZ Financial Stability Report (NZD/USD, AUD/NZD, NZD/JPY)
21:00 EUR ECB President Lagarde Speaks (EUR/USD, EUR/GBP, DAX)
21:30 EUR German 2-Year Schatz Auction (EUR/USD, EUR/GBP, DAX)
22:35 USD FOMC Member Bowman Speaks (S&P 500, Nasdaq 100, USD/JPY)
23:00 EUR German Buba Balz Speaks (EUR/USD, EUR/GBP, DAX)
23:00 USD Milk Auctions (NZD/USD, AUD/NZD, NZD/JPY)

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.