AUDUSD has recently made a strong drop below a key support level near the .7750 minor psychological mark. After that, price reached the .7750 minor psychological handle before making a forex correction.
Price is waiting at the 38.2% Fibonacci forex correction level at the moment and may be due for a move lower, as this could hold as resistance and allow the selloff to carry on. However, a higher retracement to the next Fibonacci level is possible since this lines up with the broken .7750 support.
Forex Correction Levels
If any of the Fibonacci retracement levels hold as resistance, AUDUSD could resume its drop to the previous lows of .7550 or maybe create new lows around the .7400 levels. The US dollar has been strongly support these days, as prospects of a Fed interest rate hike in June have been increasing.
The latest US jobs report showed stronger than expected hiring gains and that the US economy has already reached full employment with its 5.5% jobless rate. Meanwhile, Australia’s jobs report came in line with expectations, although underlying data still reflect weakness.
The path of least resistance is to the downside, even though the US recently printed weaker than expected retail sales data. The cold weather has restricted spending in most parts of the US, leading to lower mall sales and restaurant purchases. Despite that, fundamentals in the US remain stronger compared to Australia.
However, if upcoming economic events suggest that the Fed isn’t likely to hike interest rates soon, the dollar could return some of its recent gains. This could push AUDUSD higher to the next resistance area at the .7850 to .7900 psychological levels or higher.
Stochastic is already indicating overbought conditions, which means that profit-taking could take place soon and that price could be in for a quick reversal. Event risks for this forex correction setup include the release of US PPI figures and consumer sentiment reports.
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