AUDUSD previously broke past the resistance at the .7850 minor psychological level and climbed close to the .8100 major psychological level. From there, the pair retreated to the Fibonacci retracement levels drawn on the latest swing high and low of the 4-hour chart and is finding support at the 50% level.
This lines up with the broken resistance area, which might now hold as support. Stochastic is indicating oversold conditions anyway, which means that buyers are about to jump in soon and push AUDUSD back up. If that happens, the pair might move back to its previous highs and possibly create new ones.
In addition, AUDUSD is kept afloat by the long-term exponential moving average on the same time frame. For now, the short-term EMA is treading higher than the long-term EMA, confirming that the rally is likely to resume. However, a downward crossover of the EMA could be an early signal that a selloff is about to take place.
Event risks from Australia this week could dictate the direction of AUDUSD for the next few days. The RBA is set to make its interest rate decision and possibly announce a 0.25% rate cut, as RBA Governor Stevens previously hinted that they might ease policy further.
Data on trade, consumer spending, and employment are also lined up from Australia for the rest of the week. Weak figures could remind traders that the Australian economy needs further stimulus and could face weaker prospects down the line due to the ongoing slowdown in China.
As for the US dollar, the non-farm payrolls report is up for release at the end of the week and another disappointing figure for April might cast more doubts on the Fed’s ability to hike interest rates sometime this year. A strong reading, on the other hand, could renew dollar demand and push AUDUSD to the previous lows near the .7600 handle.
By Kate Curtis from Trader’s Way