The USD keeps rising as yields go up, impacting various currency pairs like AUDUSD, EURUSD, and GBPUSD, which are testing important technical levels. For AUDUSD, the 200-bar moving average on the 4-hour chart is at 0.6514. If it drops below this, the next targets are the 38.2% retracement level at 0.65096 and the 50% level at 0.64833.

Euro Testing Key Support Levels

In the EURUSD case, it has fallen past the 1.1663 level, quickly hitting targets between 1.1614 and 1.1629. If this support fails, focus will shift to another range from 1.15680 to 1.1578, with a 38.2% retracement at 1.15357. For GBPUSD, the pair is testing the 61.8% retracement from May’s low at 1.33873. If it drops below this level, we’ll look at the 1.3360 to 1.3378 swing area, with June’s low at 1.3371. To regain control, GBPUSD would need to rise above 1.3414. With the US 10-year Treasury yield surpassing 4.3%, a level not consistently seen for over a decade, these technical levels represent key points in a larger economic divergence. The recent US CPI showed a sticky 3.7%, and the job market keeps adding over 200,000 jobs monthly. This gives the Federal Reserve every reason to keep its “higher for longer” approach. This signals continued dollar strength against currencies with central banks facing slowing economies.

Bearish Outlook for Pound Sterling

We believe it’s time to prepare for a break of these supports rather than a bounce. The Euro is seeing a breakdown as the Eurozone’s inflation estimate cools to 2.4%, with Germany reporting a big drop in factory orders. This policy divergence creates a strong tailwind for the USD. Therefore, we are actively buying put options on the EURUSD with strikes below 1.1500, aiming for expirations in 30 to 45 days. The Sterling situation is similar. Although inflation remains high, the Bank of England is now discussing the potential harm of further rate hikes on an already weak economy, which historically is bearish. We are positioning for a break of the key retracement level by setting up put debit spreads on GBPUSD. This allows us to define our risk while aiming for a move towards 1.3200, indicating a significant change. For the Australian dollar, its future depends not only on the Fed but also on China’s faltering recovery. With Chinese youth unemployment data being withheld and property developers defaulting, Australia’s main commodity buyer is struggling. The break of the 200-period moving average should be viewed as the start of a downward trend rather than as support. We see this as a chance to sell call spreads with a target ceiling around 0.6550, betting on a quick sell-off after any temporary rally. Historical data from the 2014-2016 commodity slump shows that breaks of key long-term averages during a strong dollar cycle can lead to rapid declines. Create your live VT Markets account and start trading now.

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