FX Analysis – Fed pivot bets to be tested this week

FX markets enter the new year with a continuing backdrop of a weaker USD as traders bet on a Fed pivot in the first half of the year. That narrative could be tested later in the week with some key US manufacturing and employment data, including the monthly Non-farm payrolls.

Key levels look to be tested this week in different FX pairs with AUDUSD and Gold both being interesting examples.

AUDUSD – Gone too far, too fast?

AUSUSD has had a stellar run since late October, benefitting from the risk-on environment and following equity markets higher. A weaker USD and falling US yields as traders’ position for a Fed pivot also being a strong tailwind. AUDUSD is now sitting in the 2023 “resistance zone” where upward momentum has faltered previously. Also of note is an extreme overbought signal from the daily RSI and a growing gap between the AUDUSD price and the AU 10-year – US 10-year yield differential. Combined, these three factors could see AUDUSD upside capped for now, this week’s Non-Farm payroll will be the main figure to watch, a strong report could see traders pare back somewhat on their Fed pivot bets, pushing this pair lower.

XAUUSD – Gold

XAUUSD broke the resistance level at 2070 USD an ounce, but the bulls were unable to establish it as support and the gold price quickly retraced back below. Currently XAUSD is again flirting with this key level, where the bulls and the bears have been fighting it out. 2070 remains the level to watch this week, with US data that could certainly move yields and the USD , another push through and a hold as support could see gold make another attempt at all-time highs, a hold as resistance and the gold bull run could be over for now.