AUDUSD has recently broken below the .8700 major psychological support zone and dipped to the .8550 area before making a forex correction. This forex correction might last until the broken support area and the Fibonacci retracement levels on the 4-hour time frame.
The 38.2% level seems to be holding for now, as it lines up with the .8700 broken support. However, a higher pullback could still take place and lead to a test of the simple moving averages, as the 100 and 200 SMA line up with the 61.8% forex correction level. Stochastic is pointing down, reflecting a pickup in selling momentum.
Forex Correction Levels
On the other hand, MACD is still moving up, which indicates that there is room for a larger correction. The .8700-.8750 psychological levels might hold as resistance if the downtrend remains intact but a break past these resistance levels could show that a reversal is starting.
There are no event risks for this forex correction setup as US banks are on holiday today. Earlier today, Australia reported a decline in its NAB business confidence report, as the reading slipped from 5 to 4. At the start of the week, China reported a downturn in price pressures, as its PPI fell by 2.2% on an annualized basis.
Recall that the FOMC recently renewed its hawkish bias and might be on track to hike interest rates next year, as the latest jobs release showed promising results. While the headline NFP reading fell short of expectations, underlying data on wage growth and labor force participation showed stability.
Risk sentiment is also in favor of a downside move and an early completion of the forex correction for AUDUSD, as the risks of more conflict in eastern Ukraine are resurfacing. Geopolitical tension could bring uncertainty back to the table and weigh on higher-yielding commodity currencies.
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