AUD/USD Forecast – Australian Dollar Drops in The Early Hours

Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has fallen rather hard during the early hours on Tuesday as it does, in fact, look like we are getting a little overstretched. That being said, you could have said that multiple times on the way up to this level, but I think the market got far too ahead of itself with the idea of rate cuts. The Federal Reserve is likely to cut rates in September, but the Fed Funds Futures markets are pricing in 100 basis points between now and New Year’s Day.

If that were to be the case, it almost certainly means something ugly is coming. And if that’s the case, then the US dollar, ironically, will strengthen because people will be looking to the greenback or perhaps more specifically the treasury market to protect their money. In general, this is a market where the 0.6850 level above is a massive barrier, and I think it is likely to be very difficult to break above. If we pull back from here, the 0.6650 level could be a significant area of support.

So, we’ll just have to wait and see if we try to get down there. But the candlestick for the Tuesday session is most certainly rather negative. And I think that gives us a hint that we got a little too far. And now we are probably going to have to, at the very least, pull back in order to attract value hunters, as we have gotten so far ahead of reality in this pair.

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