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FX.co ★ AUD/USD. Federal Reserve Service Failure, US Dollar's Minute of Glory, and Magnificent Australian Dollar

AUD/USD. Federal Reserve Service Failure, US Dollar's Minute of Glory, and Magnificent Australian Dollar

The US dollar index in the Asian session today pierced again the psychologically important support level of 90.00, falling to the area of the 89th figure. Yesterday's strengthening of the greenback was too short-lived: the correction lasted no more than an hour, after which the situation returned to normal.

The immediate reason for the corrective growth of the currency was a sharp increase in the yield of treasuries. However, experts attribute the unexpected jump in the greenback to another event. Yesterday, there was a serious failure in the computer system of the Federal Reserve. This failure affected the system of applications on which the work of American banks, companies, and federal institutions depends. According to the American media, technical problems affected the work of services that provide the process of clearing checks and allow multi-billion-dollar payments to pass through the financial system every day. On average, these services process almost 900 thousand transactions per day, the daily volume of which is about 3-3.5 trillion dollars. The system handles direct deposits of wages, social security, and income tax refunds, as well as automatic payments on mortgages and utility bills. After the failure was detected, a message was posted on the official website of the Federal Reserve about the occurrence of an "emergency situation in several service areas." This fact provoked a surge in risk-off sentiment, against which the dollar began to enjoy increased demand. But after a few hours, the failure was eliminated, life returned to normal, and the greenback was again hit by a wave of sales.

AUD/USD. Federal Reserve Service Failure, US Dollar's Minute of Glory, and Magnificent Australian Dollar

Fed Chairman Jerome Powell only increased the pressure on the US currency, continuing his two-day speech to Congress. Basically, he repeated the theses that were announced on Tuesday. The essence of his rhetoric was that the US economy slowed significantly after growth last summer: the main indicators in the field of the labor market and inflation are alarming, so it is too early to talk about the imminent curtailment of monetary stimulus, despite the growth in treasury yields. The head of the Federal Reserve focused again yesterday on the fact that the regulator will first of all assess the dynamics of key macroeconomic indicators –and simultaneously applying an integrated approach (for example, the strengthening of the labor market alone will not serve as a reason for tightening monetary policy).

In other words, Powell made it very clear that the US economy is still very far from reaching the target levels – both in the field of the labor market and inflation. Therefore, the current parameters of monetary policy can only be changed in the direction of easing. The statement of this fact increased the pressure on the greenback, which had previously demonstrated its vulnerability.

In turn, the Australian dollar continues to gain momentum, receiving support from both the main macroeconomic reports and other fundamental factors. The Australian labor market is recovering at a faster pace (compared to last year's RBA forecasts), inflation indicators are also coming out in the "green zone," while the number of people suffering from coronavirus has fallen below the 2-thousand mark (with a 25-million population of the country). On Monday, a vaccination campaign was launched in Australia, which is planned to be completed in the fall.

An additional factor supporting the Australian dollar is the commodity market. Iron ore is trading above the $160 mark (for comparison: last year, the price of a ton of iron ore fluctuated in the range of $80-120), and according to experts' forecasts, it will grow to the $200 level in 2021. Analysts believe that the recovery of the Chinese economy may lead to the fact that steel prices in the domestic market of its largest consumer will exceed record highs. In turn, things will lead to an increase in demand for imported steel, which will lead to a new increase in world prices.

AUD/USD. Federal Reserve Service Failure, US Dollar's Minute of Glory, and Magnificent Australian Dollar

Thus, the prevailing fundamental background continues to support the Australian dollar, while the US dollar continues to be under significant pressure. The general risk appetite, the "dovish" comments of the head of the Federal Reserve and weak macroeconomic reports do not allow dollar bulls to turn the situation in their favor.

In other words, the northern trend of AUD/USD is still in force. From a technical point of view, the pair on all the higher time frames (from H4 and above) is either on the upper line of the Bollinger Bands indicator, or between the middle and upper lines, which indicates the priority of the north direction. On the timeframes of H4 to W1 (except for the monthly chart), the Ichimoku indicator has formed a bullish signal "Line Parade," when the price is above all the indicator lines, including the Kumo cloud. This signal indicates bullish sentiment. The strongest resistance level is at 0.8030 - this is the upper line of the Bollinger Bands on the weekly chart. It is important for buyers to overcome this target in order to gain a foothold within the 80th figure and identify further prospects. But here, it is necessary to consider that when approaching the 0.8000 mark, the pair may slow down and go for a correction – which can also be used to open longs.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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