US Dollar Strengthens As Chinese Inflation Data Raises Deflation Worries. 

US Dollar Strengthens As Chinese Inflation Data Raises Deflation Worries. 

The AUDUSD currency pair is under firm bearish pressure to start the week as the US Dollar continued its recovery following the release of Chinese inflation data, which suggested that the economy could be on the brink of deflation. Today, China released its inflation data for June 2023, surprising markets with a flat reading, defying expectations of a 0.2% increase. This unexpected stagnation marked the lowest level since February 2021 and raised concerns about the pace of the country’s economic recovery. 

The deflation concerns boosted the demand for the US dollar, which was under selling pressure following the mixed NFP report on Friday. The US jobs data showed that only 209K jobs were added in June, against the market’s expectation of 225K, weighing on the US dollar. The bears could be looking to solidify their dominance ahead of the US CPI data due later this week. 

Technical 

The 4H chart shows that the cross has been trading within a range since the successful break above the descending channel trading pattern, and with the price action firmly under bearish pressure, the market could keep a keen eye on the price action’s reaction around the 61.80% Fibonacci retracement level. A break below the golden ratio could trigger a sell-off, with the 0.66252 and 0.66109 support levels acting as levels of significance as the bears look to retest the range’s support. 

However, failure to sustain a break below the golden ratio could trigger a pullback to levels above, with the 0.55869 and 0.67011 resistance levels likely to act as levels of interest should the bulls sustain a push above the 50-EMA (blue line) and the 23.60% Fibonacci retracement level. 

Summary 

The bears have begun the week on the front foot, with a push below the golden ratio likely to bring the 0.66252 and 0.66109 support levels to provide short trading opportunities as the bears look to retest the range’s support. However, failed attempt to sustain a break below the golden ratio would leave the possibility for a pullback firmly in play. 

Sources: TradingView, Trading Economics, Reuters.