FX.co ★ AUD/USD. US dollar is waiting for the next test

The Australian dollar is still trading in the wake of the US currency, without its own arguments for further growth. To continue the upward trend, the bulls of the AUD/USD pair need not only to break through the level of 0.7200, but also to consolidate within the 72nd figure. Without the dollar's "help", it will be difficult to make such a price jump, given the conflicting fundamentals for the Australian dollar. Let me remind you that the breakdown of the key resistance level of 0.7000 was caused only by the massive weakening of the US dollar, while the Australian dollar, in this case, played a secondary role. Therefore, it is not surprising that the current correctional decline in the AUD/USD pair is also associated with the behavior of the dollar, which is now recovering throughout the market.

It should be noted that the Australian currency has recently been showing weakness. In pairing with the US dollar, the Australian dollar has been trading within the 71st figure for a week, alternately pushing off the boundaries of the price range. The results of the July Fed meeting were actually ignored by traders of the AUD/USD: the pair showed a formal growth to the "ceiling" of the price range (0.7190), not even reaching the borders of the 72nd figure. During the Asian session on Thursday, the pair reversed with the same degree and slowly began to slide towards the middle of the 71st price level. At the same time, the Aussie plays the role of the "follower" here, while the "leading" US currency demonstrates a general correctional recovery across the entire market.

After many days of decline, the dollar index is trying to regain at least part of the lost positions. The results of the July FRS meeting were very pessimistic, but this pessimism was widely expected. The worst-case scenarios (controlling the bond yield curve, announcing a rate cut) did not appear, so traders unitedly decided to take profits, allowing the dollar to remind itself of key currency pairs.

Looking ahead, it should be noted that the current correction of the dollar does not at all indicate a turning point in the market situation: the dollar is still under pressure from many fundamental factors, and in fact, the announced position of the FRS does not favor the growth of the national currency at all. Moreover, the US dollar will have to go through yet another "test" today, following which the situation on the market may change again and, perhaps, not in favor of the dollar.

The fact is that we will find out the data on US GDP growth for the second quarter today. And although only a preliminary estimate of the indicator will be published, it will make it possible to understand how much the US economy slowed down at the peak of the coronavirus crisis. Let me remind you that when the coronavirus had just begun to manifest itself in America in the first quarter, the country's economy slowed down by 5% (the maximum decline since 2009). The second quarter was the peak of the epidemic, so experts are very, very pessimistic. According to preliminary forecasts, the volume of GDP will decline by 35-36%. This is an absolute anti-record in the entire history of observations. The GDP price index should also show negative dynamics: this most important indicator rose to 1.4% in the first quarter, but in the second quarter, a significant decline is expected - 0.1%.

If the above indicators come out at the forecast level, then the market may show a restrained reaction (short-term weakening of the dollar). However, if the American economy shows a deeper recession, then in this case, the US dollar may fall again under a wave of sales. In this situation, the AUD/USD pair will return to the upper border of the price range again, that is, to the borders of the 72nd figure.

In other words, it is quite risky to make trading decisions on the pair at the moment, since it is not clear how the US currency will react to today's release. It can either strengthen the position of the dollar or vice versa - expose its vulnerability, especially amid the continuing increase in the number of COVID-19 infected in the United States. Let me remind you that outbreaks of coronavirus are now observed in the southern states, primarily in Florida and South Carolina. According to experts, there is a high probability that the spread of the virus in the near future will accelerate in the central states of the country. Amid such trends, scientists at the Johns Hopkins University Health Security Center released a report yesterday urging the United States to reconsider the coronavirus response by tightening quarantine restrictions. According to the University's experts, unlike many countries around the world, the United States is currently "not on the way to bring this epidemic under control."

Thus, it is better to take a wait-and-see attitude on the AUD/USD pair, since the fundamental picture for the dollar may change significantly in just a few hours.