For about a month, the AUDUSD appeared unstoppable. In one of the most aggressive rallies since February of last year, the Australian dollar advanced nearly 600 pips against the greenback in just seven weeks.
But last week’s drop put an end to the rally. While some will argue that Thursday’s selloff is just part of a correction, the single session plunge of 107 pips was the most ambitious for sellers since December 14th of last year.
In addition to losing 107 pips, Thursday’s decline put the pair below the 0.7608 handle on a daily closing basis. We’ve had our eye on this level since it attracted buyers in early February.
So far today’s high is right on the money at 0.7608. So we can see that this area is now acting as resistance following Thursday’s breakdown.
But entering short now would be a risky endeavor. At 10:30 pm EST, the RBA will announce its rate decision and release its monetary policy statement. The events are sure to create unfavorable trading conditions as spreads widen and volatility ramps up.
As such, I’ll remain on the sideline until the two events are behind us and the dust has settled. Any bearish price action from the 0.7608 area could offer an opportunity to get short.
If a sell signal doesn’t materialize near current levels, I’ll look to the next level of support at 0.7520. A close below that would expose the September 2016 low near 0.7450.
Alternatively, a daily close back above 0.7608 would re-expose the trend line from the April 2016 high. The level capped last month’s advance, which I also commented on here.
Want to see how we are trading this setup? Click here to get lifetime access.
