Hours ago, the AUDUSD came within just 40 pips of taking out the May high at 0.7550. The pair is currently up 150 pips since the May 9th low of 0.7328 and is just above the month open at 0.7466.
The Australian dollar is facing stiff competition today. The 0.7500 handle is a level we’ve discussed numerous times since March. And although its relevance was questionable between April 26th and May 3rd, it remains a level of interest at least for my part.
We can even see that sentiment playing out so far today. Although bulls have managed a 4-hour close above 0.7500, the big question is whether they can pull off a daily close above it at 5 pm EST.
If they do, chances are we’ll see recent gains continue, perhaps into the 0.7590 area. I will caution, however, that some consolidation would likely take place given how overextended current prices are as measured by the 10 and 20 EMAs on the daily chart.
On the other hand, should the AUDUSD close today (5 pm EST) below the 0.7500 handle, there’s a good chance of a correction toward 0.7330. But knowing something might happen is one thing, timing it is another matter entirely.
Due to the somewhat choppy price action of late, I wouldn’t feel comfortable selling a mere close below 0.7500. In cases like this, I look for corrective structures such as the 4-hour ascending channel in the chart below.
A close below channel support would expose downside targets. The confluence of support at 0.7330 is one area to keep a close eye on which is the intersection of the current May low and trend line support from the 2016 low.
Remember that all of this is predicated on a sub 0.7500 close. A close above it would lend more credence to the notion that higher prices are likely while a close below it would have us watching for a break of channel support.
Want to see how we are trading this setup? Click here to get lifetime access.