AUDUSD is currently trending lower but looks prime for a correction to its descending channel visible on the 4-hour time frame. This is in line with the 200 SMA dynamic inflection point, but price is already testing the 100 SMA at the moment.
The short-term moving average is below the longer-term one, so the path of least resistance is to the downside. This means that the selloff is more likely to resume than to reverse. Also, stochastic is indicating overbought conditions and looks ready to turn lower, indicating a pickup in bearish momentum as well.
The dollar has been on weak footing recently, as traders are reacting to the more cautious view on inflation shared by Yellen and FOMC members. In her speech earlier in the week, the current Fed Chairperson admitted that it may take longer for inflation to recover. The FOMC minutes also signaled that policymakers are worried that inflation could run below target for much longer.
Meanwhile, the Australian dollar has been bogged down by cautious RBA minutes which expressed concerns about wage growth and spending. This suggests that the central bank could stay in its neutral stance for much longer.
Most US traders are out enjoying the Thanksgiving holidays today, so liquidity could be thin. US flash manufacturing and services PMIs are up for release and these could lead to larger than usual moves for the dollar if they come in way above or below expectations.
By Kate Curtis from Trader’s Way