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AUD/USD: Bulls eye the 38.2% fibo ahead of 200-day SMA at 0.7339

  • AUD/USD has recovered towards R1 and has rallied in a three-day consecutive candlestick formation with bulls in control due to a recovery in optimism over Sino/US relations in the main and further dovish rhetoric from Fed's governor Powell. 
  • AUD/USD bulls eye between the 38.2% and 50% Fibo region. 

AUD/USD has continued its recovery from last week's the flash crash, initially picking up a bid due to profit taking and bargain hunting, looking for a mean reversion benefit from entering at the flash crash lows. Since then, the price has been given an additional boost due to good old-fashioned fundamentals.

Jerome Powell, last Friday, spoke and essentially put the brakes on the market's expectations of Fed rate hikes while the FOMC will be monitoring the US and global economic performance under a microscope to determine their next move, be it to hold or hike or potentially even cut interest rates. A strong American jobs report, plus resumption of US-China trade talks gave investor's risk appetite and the Aussie a boost. 

Fundamental risks at play

At this juncture, the Aussie, is, however, vulnerable to a set back considering the number of pips it has rallied up in a relatively short period of time. Traders will monitor the news worse of Sino/US trade-related headlines and later in the week, Powell to speak again, (Thursday). Should Powell, in any way, retract what he said on Friday, the dollar is bound to get a boost, especially following the outstanding nonfarm payrolls report that was otherwise squashed by Powell's dovish rhetoric.  That all being said, the combination of a more cautious Fed and potential Chinese stimulus, announced over the weekend, should all conspire to buoy the antipodes for the meantime.

AUD/USD levels

The market charted a hammer (reversal) on the candlestick chart following the correction of the flash crash. That bullish chart pattern has played out into a sustained bid, with RSI and MACDs moving sharply into positive territory, perhaps a little too steeply at this juncture. However, the price is now through the 21-D SMA that is flattening, which could make for a period of consolidation before a bearish correction. Otherwise, bulls can target R1 at 0.7165 with an ultimate objective located at the 38.2% Fibo retracement level of the 2018 decline located up at 0.7244.  The market will then look to retarget the September and early November highs at 0.7302/14 and to reassert upside interest to the 200-day sma at 0.7339.

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