The AUDUSD is correcting lower after this week’s break above the May high, but the pair still has work to do if sellers are going to take greater control.
Fundamentally, Australian CPI helped fuel the earlier move higher this week (on Wednesday). Inflation rose 1.0% for the month and 3.5% year over year, above the 3.3% annual estimate. The hotter reading supported the Australian dollar and helped push the AUDUSD above the May high going back to May near 0.7200.
However, the upside momentum stalled today after the price reached a 0.7207. Fed Chair Kevin Warsh’s more hawkish Jackson Hole speech helped strengthen the US dollar (weaken the AUDUSD), while market expectations for a Fed rate hike increased toward 60%.
Technically, the move back below 0.7200 was the first crack in the bullish armor. The subsequent break below the 100-hour moving average at 0.7179 tilted the short-term bias more to the downside.
The next important target now is the rising 200-hour moving average near 0.7150. A break below that level—and staying below—would give sellers more control and open the door for additional corrective selling.
Even then, sellers would still have work to do. A swing area near 0.7125 would be the next downside target, followed by the 38.2% retracement of the rally from the late-July low near 0.7098. Breaking below those levels would increase the bearish bias and suggest the correction is developing into something more significant.
Conversely, if buyers can defend the 200-hour moving average and push the price back above the 100-hour moving average, the technical picture would stabilize. A move back above 0.7200 would then be needed to put buyers firmly back in control and reopen the door toward this week’s high at 0.7207.
PS. WIth yields moving higher along with the USD, the price of gold is following and down $145 or 3.15%. That is the worst day since June 10 when the price tumbled close to 4.5%. The AUDUSD will tend to follow the price of commodities and the sharp fall today is helping to contribute to the declines today.
This article was written by Greg Michalowski at investinglive.com.