AUDUSD has been trading in a steady downtrend in the past few months, with a falling trend line connecting the latest highs on the 1-hour time frame. The pair previously bounced off its lows and is showing signs of a pullback to the trend line.
Using the Fibonacci retracement tool on the latest swing high on low on the same chart shows that the 61.8% Fibonacci level lines up with the .8150 minor psychological resistance and the trend line. This could keep gains in check and push price back to its previous lows or to new ones around the .8000 major psychological support.
Shorting at .8150 with a stop above the .8200 major psychological resistance and a target of .8000 could offer close to a 3:1 return on risk. Stochastic is almost in the overbought area, indicating that buying pressure is weakening and that sellers could start shorting the pair once more.
Event risks for this AUDUSD setup include the release of the FOMC minutes mid-week, as this might shed more light on whether or not the US central bank is ready to start tightening monetary policy this year. Hawkish remarks could add support for this bias and allow the pair’s downtrend to resume and strengthen. On the other hand, cautious comments could downplay rate hike forecasts and lead to a reversal for AUDUSD.
As for Australia, the country is set to print its building approvals and retail sales reports later in the week. Earlier today, the trade balance posted better than expected results. China will release its CPI figures on Friday and possibly show another downturn in producer price inflation.
With that, the path of least resistance for this pair is to the downside, as falling commodity prices and risk aversion are also weighing on the Australian dollar. Continued expectations of Fed tightening could keep the US dollar supported.
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