AUD/USD is pulling back after this week's breakout above the May high, but the pair still has ground to cover before sellers can take firmer control of the exchange rate.

On the fundamental side, Australian CPI data released on Wednesday helped fuel the earlier advance this week. Inflation rose 1.0% for the month and 3.5% year over year, exceeding the 3.3% annual estimate. The hotter-than-expected reading supported the Australian dollar, as firmer inflation can keep pressure on the Reserve Bank of Australia to maintain a tighter policy stance, and helped lift AUD/USD above the May high, a level dating back to May near 0.7200.

However, upward momentum stalled today after the price reached 0.7207. Fed Chair Kevin Warsh's more hawkish Jackson Hole speech helped strengthen the US dollar, weighing on AUD/USD, while market expectations for a Fed rate hike climbed toward 60%. The moves on both sides of the pair this week illustrate how AUD/USD often trades on the relative interest-rate outlook between the US and Australia rather than Australian data alone.

From a technical perspective, the move back below 0.7200 marked the first crack in the bullish armor. A subsequent break below the 100-hour moving average at 0.7179 shifted the short-term bias further toward the downside. In intraday analysis, the 100-hour and 200-hour moving averages are widely watched momentum gauges, and breaks above or below them are commonly treated by traders as signals of shifting near-term direction.

The next key level is the rising 200-hour moving average near 0.7150. A break below that level—and a sustained hold below it—would hand sellers greater control and open the door to additional corrective selling.

Even then, sellers would still face work ahead. A swing area near 0.7125 stands as the next downside target, followed by the 38.2% retracement of the rally from the late-July low near 0.7098. A break below those levels would strengthen the bearish bias and suggest the correction is developing into something more significant.

Conversely, if buyers can defend the 200-hour moving average and push the price back above the 100-hour moving average, the technical picture would stabilize. A move back above 0.7200 would then be required to put buyers firmly back in control and reopen the path toward this week's high at 0.7207.

PS. With yields moving higher alongside the US dollar, gold prices are following suit and are down $145, or 3.15%. That marks the worst day for the metal since June 10, when the price tumbled close to 4.5%. AUD/USD tends to track commodity prices, given Australia's role as a major commodity exporter, and today's sharp fall is contributing to the pair's decline.

Source: Investinglive