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AUDUSD Direction Hinges on 0.7380

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On Tuesday we looked at how the AUDUSD was in the process of closing below the key 0.7380 handle. This area dates back to late 2015 and is also the 61.8% Fibonacci retracement from the December 2016 swing low to the current 2017 high.

The pair went on to close the day below 0.7380 and spent the next 48 hours trading below the new resistance level. However, today’s CPI and retail sales figures out of the U.S. launched the AUDUSD higher, albeit temporarily.

The Australian dollar has been under pressure since the March 21st bearish engulfing candle. The reversal candle formed after the pair retested trend line resistance from the 2016 high.

All of this matters because it points to momentum, which is still bearish despite today’s intraday rally. The key, however, is where today’s session closes at 5 pm EST.

A close back above the 0.7380 handle could indicate that a move higher is in the cards for next week. On the flip side, a daily and weekly close below 0.7380 would form a bearish pin bar, a sign that a move toward trend line support near 0.7300 is the likely outcome.

But it all comes down to today’s close. Furthermore, the fact that trend line support is less than 100 pips below current prices means that a favorable risk to reward ratio may be difficult to come by.

For that reason, waiting for a potential break below trend line support near 0.7300 is an acceptable approach. In fact, it’s the most prudent way to handle the current situation in my opinion.

That doesn’t mean I won’t entertain a short next week should the pair close today below 0.7380. But any position taken from here requires above average risk control given that critical support is just below current prices at 0.7300.

A close back above 0.7380 would expose the next key resistance level at 0.7500. Of course, I suspect that recent lows at 0.7440 would also attract sellers on the way up.

Alternatively, a close below 0.7380 would pave the way for a move toward 0.7300 next week. A daily close below that would open up a greater opportunity for a move toward the December 2016 lows at 0.7160.

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AUDUSD daily chart

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