AUD/USD climbs towards 0.6950, on soft US data, ahead of Aussie CPI and FOMC meeting

• The AUD/USD advances towards solid resistance around the 0.6970-90 area.
• Weak US economic activity and manufacturing data reported on Monday increase the chances of a US recession.
• AUD/USD Price Analysis: Downward biased, but if buyers reclaim 0.6970, a test of 0.7000 is on the cards.

The AUD/USD climbs during the North American session but faces solid resistance around the 50-day EMA around 0.6971, amidst an upbeat market mood, with US equities rising, except for the Nasdaq, down 0.44%. Softer US economic data further reinforces the recession scenario as the Fed tries to tame 40-year high inflation by hiking rates aggressively and is widely expected to lift the Federal funds rate (FFR) to 2.50% on Wednesday.

The AUD/USD is trading at 0.6959 after opening near the 0.6920 area. During the Asian session, the major tumbled to the daily low of 0.6878, but buying pressure overcame sellers and lifted the pair to the daily high around 0.6965, also shy of the confluence of the R1 pivot point and the 50-day EMA.

Dismal US data increased the likelihood of a recession

Earlier in the New York session, the Chicago Fed revealed its National Activity Index for June, which tumbled to -0.19 MoM, unchanged from the May reading. However, it’s worth noticing that the 3-month moving average shifted negatively for the first time, indicating deterioration. Late during the day, the Dallas Fed Manufacturing Index plummeted to -22.6 from -12.5 estimated in July.

Meanwhile, an absent Australian economic docket left traders adrift to market sentiment and US economic data. Nevertheless, throughout the week, AUD/USD traders will get some cues from Australia’s Q2 inflation report, which is expected to rise by 6.3%, to its highest since 1990. That would ramp up rate hike expectations by the Reserve Bank of Australia (RBA), with money market futures already pricing in a 75 bps rate hike.

What to watch

On Tuesday, the US economic docket will feature CB Consumer Confidence, New Home Sales, and the beginning of the two-day US FOMC monetary policy meeting.

AUD/USD Price Analysis: Technical outlook

Despite the ongoing correction, the AUD/USD is still downward biased, facing solid resistance on the confluence of the 50-day EMA and a four-month-old downslope trendline, around the 0.6971-85 area. Nevertheless, it’s worth noting that the Relative Strength Index (RSI) at 56.38 aims higher, opening the door for a potential test of 0.7000. But sellers remain in charge unless buyers step in and break resistance around 0.6970-85.

If the latter scenario plays out, the AUD/USD first resistance would be 0.7000. Break above will expose the 100-day EMA at 0.7133, followed by the 200-day EMA at 0.7153. On the other hand, the AUD/USD first support would be the 0.6900 figure. A breach of the latter will send the major sliding towards the 20-day EMA at 0.6840, followed by the 0.6800 mark.