AUDUSD is already in the middle of a corrective wave, which might now be over and turn into an impulse wave. The pair has been in a steady downtrend visible on its longer-term charts and is testing the highest Fib level on the latest retracement.
The 100 SMA is below the long-term 200 SMA, confirming that the downtrend is likely to resume. In addition, the 200 SMA coincides with the 61.8% Fib and is holding as resistance. If price turns from here, a move towards the previous lows at .6900 could take place.
On the other hand, an upside break past the current levels could mark the start of a reversal and a new impulse wave higher. RSI has been indicating overbought conditions for quite some time, which suggests that a downward move is likely, but stochastic is almost turning from the oversold zone to show a return in buying momentum.
AUDUSD Fundamental Factors
The FOMC decided to keep interest rates unchanged for the time being, delaying their liftoff possibly to much later this year. Majority of Fed officials still believe that tightening can take place before the end of 2015, but one policymaker suggested a move towards negative interest rates due to the downturn in inflation.
Fed officials also upgraded their growth forecast for this year while downgrading their estimates for 2016 and 2017, citing financial and economic risks from China. The RBA has also highlighted the risks stemming from China and emerging markets in their meeting minutes released this week, emphasizing that they’re likely to keep policy accommodative.
With that, the path of least resistance is to the downside for AUDUSD since the Australian economy faces greater exposure to China and emerging economies compared to the US. Besides, the US dollar could gain support from risk-off moves if these risks materialize.
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