Commodity Currencies Falter After Bearish Reversals as USD Strengthens
The US dollar regained strength on Wednesday as major commodity currencies—AUD, NZD, and CAD—posted significant bearish engulfing patterns, signaling a potential shift in trend. Market sentiment is being shaped by a less-dovish Federal Reserve, anticipation around US–China trade talks, and evolving technical setups across key forex pairs.
Fed Holds Steady While Signaling Limits to Policy Easing
As expected, the Federal Reserve left interest rates unchanged at its latest FOMC meeting. While not outright hawkish, the Fed struck a cautious tone, highlighting risks from both inflation and rising unemployment. This restrained outlook suggests that policymakers are unlikely to deliver the aggressive rate cuts markets have been pricing in.
In essence, the Fed’s message was clear: easing will be limited unless data dramatically deteriorates. The US dollar responded favorably, advancing against its major counterparts amid the ongoing rate uncertainty.
Trade Talks Offer Hope Amid Growing Global Tensions
Investor attention now shifts to the upcoming US–China trade negotiations. President Trump has hinted at reducing tariffs, which offers a ray of optimism. However, the specifics of any agreement—and China’s potential concessions—remain uncertain. Markets may react strongly to the outcome, with risk sentiment hanging in the balance.
AUD/USD Technical Outlook: Aussie on the Defensive
The AUD/USD pair posted its most bearish session since early April, printing a bearish engulfing candle on the daily chart. This move coincided with a failed breakout above 0.65, a close below the 200-day simple moving average (SMA), and bearish RSI divergence. These signals point toward a possible pullback toward the 0.6370 volume point of control (VPOC).
If the pair rebounds, the 200-day SMA at 0.6455 could act as resistance. A decisive break below 0.6344 would further confirm bearish momentum and dampen outlook for Aussie bulls.
NZD/USD Analysis: Bearish Setup Gathers Momentum
NZD/USD also formed a bearish engulfing pattern, confirming a lower high and suggesting a potential double top beneath the November peak. Bearish RSI divergence and a likely ABC corrective structure imply further downside. A move toward the 200-day SMA near 0.5894 is probable, with potential extensions targeting the 0.58 level.
USD/CAD: Poised for a Bullish Reversal?
USD/CAD has shown signs of waning bearish momentum over recent sessions. A bullish divergence is forming, hinting at a potential breakout to the upside. The pair’s failure to break decisively below the October and weekly VPOC zones adds to this thesis. A short-term rally toward the 1.40 handle could be underway if the US dollar remains firm.
GBP/USD: Head and Shoulders Top in Formation
GBP/USD is showing early signs of forming a head and shoulders (H&S) top. The recent bearish “Dark Cloud Cover” candlestick pattern supports this view. A break below the neckline at 1.3260 could lead to a fall toward 1.3080, with intermediate support at 1.3200 and 1.3158. The path forward depends heavily on the Bank of England’s tone and US dollar strength.
Key Events to Watch
BOJ Monetary Policy Minutes – Potential JPY volatility
German Industrial Production – Impact on EUR
BOE Interest Rate Decision – A 25bps cut could pressure GBP
US Jobless Claims – A major driver for USD sentiment
Conclusion
With bearish signals flashing across major commodity currencies, traders should stay alert for potential volatility ahead of the weekend. The Fed’s cautious stance, coupled with geopolitical developments and technical breakdowns, could make or break short-term trends.
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