AUDUSD has been moving higher in the past few days but it could be a large correction from the longer-term downtrend. Applying the Fibonacci retracement tool on the latest swing high and low shows that the 61.8% level lines up with an area of interest which might hold as resistance.
The 100 SMA is still far below the longer-term 200 SMA, confirming that the downtrend is likely to carry on. Stochastic is indicating overbought conditions so the recent rally might soon be over. Similarly, RSI is in the overbought area as well.
If the selloff resumes, AUDUSD could fall back to the previous lows around the .6900 handle or much lower. On the other hand, a break past the 61.8% Fib or .7200 area could mean that a reversal is taking place.
AUDUSD Fundamental Factors
The main event risk for this setup is the FOMC statement later on this week, as the Fed is widely expected to refrain from announcing any monetary policy changes. The FOMC is also set to print its economic projections and any positive revisions could keep rate hike expectations in play, possibly keeping the dollar supported. On the other hand, the lack of commitment to any kind of tightening for this year could mean losses for the US dollar.
As for the Aussie, the RBA meeting minutes released earlier this week revealed a downbeat tone, as policymakers shared concerns about China and commodity prices. Although the central bank kept rates on hold in their official statement, the tone of the minutes suggests that they could be open to further easing if necessary.
Data from the US economy came in weaker than expected, with both the headline and core retail sales figures printing tiny gains. The CPI reports are up for release today and another disappointing set could spur more weakness for the dollar while upbeat reports could set the tone for an upbeat FOMC statement.
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