AUDUSD recently broke below a short-term support area at the .7900 handle and may be due for a quick forex correction. Price dipped to the .7800 major psychological support before showing signs of a potential pullback.
Using the Fibonacci retracement tool on the latest swing high and low shows that the 61.8% level lines up with the broken support level. This is also near the long-term exponential moving average, which has acted as a dynamic resistance level in the past.
Forex Correction Levels
A shallow forex correction, however, might last only until the short-term EMA, which is below the nearest Fib level. Stochastic is still pointing up though, which means that there is plenty of room for a pullback.
Once sellers return to action, the pair could test the previous lows at .7800 or possibly create new ones closer to the .7700 mark. Further selling momentum could lead to a longer-term drop until the .7500 support area. On the other hand, a break past the Fib levels or the long-term EMA might indicate that buyers are getting stronger.
The path of least resistance is to the downside though, as the Fed remains on track to hike interest rates sometime this year while the RBA could be eyeing another rate cut. Data from Australia has failed to impress and it doesn’t help that China is facing another prolonged slowdown which might weigh on demand for commodity exports.
There are no reports due from Australia and the US today, as the latter is celebrating Memorial Day holiday. Risk aversion could continue to keep higher-yielding currencies’ gains in check and favor the safe-haven US dollar for the time being. Throughout the week, only a few medium-tier reports are lined up from the US, although weak data might still hurt demand for the Greenback.
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