AUD/USD struggles to capitalize on attempted recovery beyond 0.7300 mark

• AUD/USD staged a modest recovery from over one-month lows touched earlier this Friday.
• The USD witnessed some profit-taking after hitting 16-month tops and extended support.
• A combination of factors should limit the USD pullback and cap the upside for the major.

The AUD/USD pair built on its steady intraday recovery from multi-week lows and climbed further beyond the 0.7300 mark during the early European session, albeit lacked follow-through.

Following an early dip to the lowest level since October 7, the AUD/USD pair attracted some buying near the 0.7375 region on Friday and for now, seems to have snapped three days of the losing streak. The US dollar witnessed some profit-taking after hitting 16-month tops earlier today, which, in turn, was seen as a key factor that extended some support to the major.

Meanwhile, the USD pullback lacked any obvious fundamental catalyst and is likely to remain limited amid expectations for an early policy tightening by the Fed. Wednesday's hotter-than-expected US CPI print further fueled speculations that the Fed would be forced to adopt a more aggressive policy response to contain the continuous rise in inflationary pressures.

This, along with elevated US Treasury bond yields and the cautious market mood, should act as a tailwind for the safe-haven greenback and cap gains for the perceived riskier aussie. This makes it prudent to wait for a strong follow-through buying before confirming that the recent rejection slide from 200-day SMA has run its course or placing aggressive bullish bets.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim Michigan Consumer Sentiment Index later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment, will influence the USD and produce some trading opportunities around the AUD/USD pair on the last day of the week.

Technical levels to watch