AUDUSD recently made a strong break below a rising trend line, indicating that a downtrend is in order. Price found support at the .7000 major psychological level, though, and is making a correction to the broken trend line.
Using the Fibonacci retracement tool on the latest swing high and low shows that the 50% level lines up with the broken tend line and the moving averages. The 100 SMA is still above the 200 SMA for now but a downward crossover appears to be brewing, hinting that further downside is in the cards.
A larger correction to the 61.8% Fib or .7150 minor psychological level might also be possible, but this would be the line in the sand when it comes to correction moves. A rally past this area could show that the uptrend is still intact.
Stochastic appears to be moving up, although it hasn’t quite indicated oversold conditions yet. Still, buying pressure could be returning since RSI is also in the middle of a climb.
Catalysts for a strong move include Fed head Yellen’s testimony in today’s US trading session. Any hints of a rate hike for March could mean gains for the dollar, allowing AUDUSD to resume its drop. On the other hand, downbeat remarks could spur dollar losses and a rally for AUDUSD.
Recall that FOMC officials have shifted to a less upbeat stance for the US economy, citing concerns such as weak inflation, volatile and tighter financial market conditions, and the negative impact of dollar strength on price levels. If Yellen echoes these issues, the US dollar might be in for declines.
In that case, AUDUSD could attempt to rally until the .7200 major psychological mark around the swing high or go for stronger gains throughout the week.
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