Is the AUDUSD rally about to reverse course? That’s the question many traders are asking following this morning’s shakedown.
The cause of today’s tumble was a hawkish remark from Janet Yellen about the need for the Fed to raise rates at the next meeting.
But let’s not get ahead of ourselves. After all, it’s a 60 pip drop within a 540 pip rally.
Clearly, the U.S. dollar strengthened as a result of this news. The dollar index (DXY) is up again today and has now appreciated in six of the last seven sessions. This isn’t surprising given the bullish breakout that I pointed out on February 7th.
I maintain my bullish stance on the DXY and believe the index could appreciate considerably over the coming weeks and months.
As for the AUDUSD, the pair has formed an intraday pattern that has put buyers on notice. The 4-hour upward sloping flag in the chart below is as well-defined as they come and hints of an imminent reversal.
On top of that, the pair is in the process of carving out a bearish engulfing day. But with five hours left in the session, anything can happen.
From here I’ll be interested in shorting the AUDUSD should the pair close below channel support. Key levels to keep an eye on include 0.7608 and 0.7520. Only a close above the 0.7700 handle would suggest a move higher toward the confluence of resistance at 0.7750.
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