As illustrated by the AUD/USD chart, while the pair was trading near a two-month low at the start of Friday, today it has jumped by more than 1.1%.

The primary driver behind this rally is the weakening US dollar, which reflects the market’s reaction to Jerome Powell’s comments at the Jackson Hole Symposium. He stated that the risks of declining employment are rising. And if these risks materialise, it could happen very quickly. According to Reuters, this strengthens the likelihood of a Federal Reserve rate cut at its meeting next month.

At the same time, market participants are preparing for the release of Australia’s CPI data, scheduled for this Wednesday.

Technical Analysis of AUD/USD

On 14 August, we reviewed the dynamics of the Australian dollar and highlighted the following:
→ a descending channel was identified, with the AUD/USD chart signalling prevailing bearish sentiment;
→ the psychological level of 0.6500 was marked as critical.

Since then:
→ the pair broke through the support line S around 0.6500;
→ on Friday it dropped to a two-month low;
→ but today it is showing signs of strength.

What Could Happen Next?

Bearish outlook:
→ the pair remains within the descending channel;
→ low 5 continues the sequence of lower highs and lower lows;
→ the sharp rally in AUD/USD might prove to be an overly emotional reaction to the Fed Chair’s remarks.

Bullish outlook:
→ when forming low 5, the price fell only slightly below low 3. In SMC terminology, this can be interpreted as a bullish Liquidity Grab;
→ the black arrow indicates a long lower shadow – a sign that demand persisted over the weekend.

Price action suggests an attempt to test the resistance area formed by:
→ the 0.6500 level,
→ the QH line dividing the upper half of the channel into two quarters,
→ the bearish candle (marked with a red arrow), where selling pressure was previously aggressive, breaking support at S – meaning supply dominance may still remain to some extent.

If bulls manage to secure a foothold above 0.6500, this mght be interpreted as a significant shift in market sentiment in favour of demand. In the longer term, this could drive AUD/USD towards the upper boundary of the channel (with a possible breakout scenario).

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