The easy move lower for the Australian dollar has now been made with the overnight low around 0.7836 perfectly satisfying the 38.2% Fibonacci retracement that is usual after such a strong move in asset markets.
So at 0.7850 this morning the reversal in the AUDUSD has been satisfied with this move to 0.7850 and now 0.7836.
And what’s next for the Aussie dollar is likely to be driven by what happens to the US dollar which itself will be driven by the path of the Trump tax plan through Congress, the path of fed rate hikes, and of course the data.
All of these drivers suggest the Aussie dollars fall is not over yet. We might see a little bounce back toward 79 cents before it falls again.
The combination of this tax plan and Janet Yellen’s hawkishness is a signal the worm has turned for the US dollar. That there was a change in the market’s narrative is something I have been talking about recently.
And what it means is that a stronger US dollar will reverse some of the powerful trends that pushed Euro, CAD, and Aussie to multi-year highs recently. Specifically for the Australian dollar, it reinforces that it remains under downward pressure.
Certainly, the positive global backdrop which is attendant to the trend to higher rates in the US and across the globe will continue to support. But an undeniably large part of the run to 0.8124 was the weakness of the US dollar. And the downside still beckons as the US dollar recovers.
A simple 38.2% retracement of the DXY’s fall from the Trump tribute highs to the recent lows suggests a move to 95.85/96.00. A similar retracement in the Euro suggests 1.1525.
So I retain my expectation of a move toward 0.7750 with a high probability the fall could extend to 0.7650 under current circumstance.
In the short term, the 4-hour charts suggest a move to 0.7880/85 can’t be ruled out on the day. Maybe even 0.7900/07 cents. The 4-hours are mapping nicely on the Fibonacci levels as the chart below shows.
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