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The US dollar turned bearish in October last year. Stocks surged from their lows as the dollar weakened.
This year, so far, the dollar reversed the trend once again. It is pushing higher against all its peers, such as the Australian dollar (AUD), the British pound (GBP) or the euro (EUR).
In some cases, such as the AUD/USD, the dollar reversed almost all its previous move. This is key for interpreting the future market direction because such strong reversals typically form in triangular patterns.
Triangles are corrective patterns. They form either as simple corrections or as part of larger, complex corrections.
One distinctive feature of triangles is that they typically appear at the end of complex corrections. Therefore, when a triangle ends, it is usually the end of a larger degree market move, meaning that a new trend is about to begin.
AUD/USD completes the e-wave of a triangle ahead of key US data
Jerome Powell is confident that inflation in the US has peaked. At least, this is the conclusion following the Jackson Hole speech.
As such, the focus now shifts to the labor market. Soft data should push the Fed away from hiking the funds rate again.
For the remaining two American trading sessions of this week, inflation and jobs data are due. First, later today, the Core PCE Price Index is due. This is the Fed’s favorite measure of inflation. If inflation has peaked, the data should confirm it.
Second, tomorrow, there is the NFP report for the month of August. A miss there should put pressure on the US dollar, triggering a move higher in pairs such as the AUD/USD.
We’ll know if the triangle is completed only when the AUD/USD exchange rate moves back above 0.68. For the triangle to be validated, the market must break the b-d trendline in less than the time it took the e-wave to form.
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