AUD/USD eases to 0.6950 on recession, Fed talks, focus on US Consumer Confidence

• AUD/USD struggles to defend recent gains amid mildly sour sentiment, sluggish session.
• Mixed concerns over the US, China recession battles latest downbeat US data to restrict immediate moves.
• Lack of major catalysts, cautious mood ahead of the key data also challenge momentum traders.
• US Consumer Confidence for July to decorate calendar, qualitative factors are the key.

AUD/USD portrays the market’s indecision ahead of the week’s key data/events as it fades the week-start bullish bias around 0.6950 during Tuesday’s Asian session. In addition to the anxiety before Wednesday’s Aussie quarterly inflation and the Federal Open Market Committee (FOMC) meeting, mixed concerns over the US recession and the Fed’s next moves also test the pair traders.

On Monday, softer US data joined the firmer equities to help the AUD/USD pair buyers to keep reins after the first weekly gains in four. That said, Chicago Fed National Activity Index reprinted -0.19 in June, versus a -0.03 forecast. Further, Dallas Fed Manufacturing Index for July slumped to the lowest levels since mid-2020 to -22.6 versus -12.5 expected and -17.7 prior.

Also fueling the AUD/USD quotes were mixed concerns over the Fed’s next move as Friday’s downbeat prints of the US activity numbers for July raised concerns that the US central bank may not be too aggressive.

In this regard, two US Treasury officials, namely Ben Harris, Treasury Assistant Secretary for Economic Policy and Neil Mehrotra, Deputy Assistant Secretary for Macroeconomics raised hopes for a firmer US Gross Domestic Product (GDP). The officials wrote, per Reuters, that gross domestic income (GDI), which measures aggregate income -- wages, business profits, rental and interest income -- continued to rise in the first quarter at a 1.8% annual pace, while GDP fell.

Earlier in the week, US Treasury Secretary Janet Yellen talked down fears of the US recession while saying, “A second quarter GDP contraction would not signal recession because of underlying job market strength, demand and other indicators of economic health.”

It’s worth noting that Bloomberg’s analysis suggests the Chinese recession concerns weighing on the economic slowdown at the major economies also drown the AUD/USD prices due to the closed trade links between Australia and China. “China’s economic slowdown is spilling over to major exporting nations in Europe and East Asia through falling demand for manufactured goods, causing Germany and South Korea to post rare deficits with the world’s second-largest economy,” said Bloomberg. On Monday, Australian Prime Minister Anthony Albanese requested China to remove its trade sanctions to begin repairing the fractured relationship.

While portraying the mood, Wall Street managed to close mixed, with Nasdaq posting mild losses versus the softer gains of the DJI30 and S&P 500. However, the US 10-year Treasury yields snapped a three-day downtrend and rose nearly 1.75% while regaining the 2.81% mark of late. It should be noted that the S&P 500 Futures drop 0.30% intraday by the press time.

Given the recently downbeat concerns and a lack of major catalysts, AUD/USD prices are likely to remain pressured. However, US CB Consumer Confidence for July, prior 98.7, appears to be the key for the pair traders to watch for the intraday directions.

Technical analysis

A downward sloping resistance line from early April and 50-DMA limit short-term AUD/USD upside around 0.6955 and 0.6975 in that order. The pullback moves, however, need validation from the 21-DMA level surrounding 0.6850 to convince bears.