AUD/USD bears could be about to move in on a 50% mean reversion

• AUD/USD awaits a speech by RBA's Lowe that should shed some light. 
• The Fed is in a blackout period ahead of the FOMC.
• A 50% mean reversion could unfold in the coming days. 

At 0.6827, AUD/USD is trading between a 0.6784 and 0.6854 range but is higher by 0.5% on the first trading day of the week in midday New York trade. However, the pair is significantly higher than the fresh bear cycle low that was printed last week which was the lowest it has been since June 2020, at 0.6682.

Net AUD short positions have moved higher reflecting concerns over the outlook for commodity prices. However, the Aussie is showing some signs of resilience which could be down to the economic rebound from Covid lockdowns, as noted by analysts at Westpac.

''Australia's domestic economy continues to provide the Aussie with support. June business confidence and July consumer sentiment fell but hard data on the likes of retail spending and employment remain consistent with a strong rebound from Covid lockdowns,'' the analysts explained. ''Australian jobs surged 88K in June, slashing the Unemployment Rate from 3.9% to just 3.5%, the lowest since 1974.''

The data was important and the Aussie firmed the sentiment surrounding the reserve Bank of Australia. ''The booming jobs data sparked debate over whether the RBA might speed up the pace of tightening with a 75 basis point cash rate rise in August (especially in the wake of Q2 CPI data on 27 July),'' the analysts explained. However, they are maintaining their call for another 50bp move, to 1.85%. Market pricing is around +55bp. A speech coming up by Governor Lowe should shed some light on the debate.

Eyes on the Fed

As for the US dollar, markets are gearing up for the Federal Reserve meeting on 26-27 July FOMC meeting. The Fed speakers are now in the blackout period and the conclusion from the hawkish rhetoric in statements made by Fed speakers between the last meeting to date is that while US June inflation was even higher than expected, 9.1% year from 8.6% year in May, there is more of a bias of a 74bp move over a 100bp hike. In turn, the US dollar has lost some shine to trade back below 107 on Monday as per the DXY index which measures the greenback vs. a basket of major currencies. It was trading as high as 109.29 in a fresh bull cycle high last week. 

AUD/USD technical analysis

The W-formation is a reversion pattern which can be expected to draw in the price to the area around the neckline as illustrated above. In this daily scenario, there are prospects of a retracement to the 38.2% Fibonacci and the 50% mean reversion target thereafter.