AUDUSD recently broke past resistance at the .8000 major psychological level and surged up to a high of .8150. From there, the pair showed signs of a forex correction from the rally and may be due for a pullback to the short-term Fibonacci retracement levels.
In particular, the 50% Fibonacci retracement level lines up with the broken resistance at .8000, which might now hold as support. It also coincides with the longer-term exponential moving average on the 1-hour chart and this has held as dynamic support in the past.
Forex Correction Levels
For now, stochastic is moving down, which means that sellers are in control of price action and that the forex correction is not over yet. Price could still pull back to the 61.8% Fibonacci retracement level at .7975, which might be the line in the sand for any retracements.
A break below the .7975 area could signal the start of a longer-term drop, possibly until the next floor around the .7900 major psychological level. Further declines past this point could lead to a selloff until the .7800 handle.
On the other hand, a bounce off any of the Fibonacci retracement levels would confirm that the uptrend is still intact and that a climb towards the previous highs at .8150 is likely. Sustained bullish momentum could lead to a rally to new highs, probably until the .8200 mark.
Event risks for this forex correction trade include medium-tier releases from the US economy in today’s New York trading session. This comprises the Empire State manufacturing index, the preliminary consumer sentiment index from the University of Michigan, and the industrial production and capacity utilization figures. Strong data could renew demand for the US dollar as it would revive Fed rate hike expectations while weak figures could allow the AUDUSD uptrend to carry on. For now though, the downgrade in Fonterra volumes is weighing on the Aussie.
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