The AUDUSD has fallen sharply this week as buying of the US dollar took center stage. Fed officials struck a tougher tone on policy, Treasury yields moved higher, and the market-implied probability of an October rate hike rose to around 66% at the time of this update. Higher US yields can make the dollar more attractive relative to other currencies, adding pressure to pairs such as AUDUSD.
The technical picture turned more bearish on Wednesday when the pair broke below its 100-day moving average with momentum. That put the 200-day moving average, currently near 0.70217, in the sellers’ sights.
The price reached that level early in the Asia-Pacific session yesterday and briefly broke below it. Buyers responded, pushing the pair back up, but the recovery stalled before the 0.70515 midpoint of the rise from the late-June low. The high reached 0.70447. By the end of the day, AUDUSD had turned lower again and closed below its 200-day moving average.
Today brought another test. The pair fell to 0.7005 in early Asia-Pacific trading, its lowest level since August 4. Broader US dollar selling, including a move lower in USDJPY, and improved risk sentiment then helped AUDUSD rebound above the 200-day moving average. The rally reached 0.7036, but the price has since rotated back toward that moving average.
That leaves traders with a decision at a familiar level.
The break below the 200-day moving average matters: it was the first in nearly 11 months. Many traders use that average as a guide to the longer-term trend. Still, AUDUSD has already fallen from 0.7237 to around 0.7000 in just 12 trading days. After a decline of that size, some sellers may take profits and some buyers may look for a bounce. A move back above the average tells us buyers are trying; it does not, by itself, tell us the decline is over.
What would give buyers more control?
Holding above the 200-day moving average would be a start. The next test is 0.70515, the 50% midpoint that stopped yesterday’s recovery short. A move above that level would bring the 100-day and 100-hour moving averages, both currently near 0.70688, into focus. Getting back above those averages would give buyers a stronger case that the recent selling pressure is easing.
What would keep sellers in control?
A move back below the 200-day moving average, followed by a break under the natural support at 0.7000, would shift attention to the 0.6962–0.6978 swing area. Below that, traders would look toward 0.6920.
For now, the 200-day moving average is the barometer. Buyers have recovered it, but they need to hold it and clear resistance above. Sellers had the pair below it at yesterday’s close; a renewed break below, especially through 0.7000, would put the downside targets back in play.
This article was written by Greg Michalowski at investinglive.com.