- The AUD/USD kicked off the trading session on Friday with a feeble attempt to rally, as it flirted with the critical 0.69 level.
- This tentative surge suggests that a dose of gravity might finally be exerting its influence on this particular currency pair.
- However, I remain unconvinced that we are witnessing a complete reversal of the market's trajectory. In fact, it appears that various markets, not limited to this one, have reached a state of parabolic fervor, indicating an impending correction.
- As we all know, markets are not inclined to travel in a single direction indefinitely.
The foreign exchange realm perceives the Australian dollar as a "risk-on currency," necessitating an evaluation based on whether risk appetite is prevailing among traders. Notably, we have only encountered one negative data point preceding the current one over the past couple of weeks. Therefore, a retracement toward the 0.68 level seems reasonable, particularly since it previously served as a formidable resistance barrier. Consequently, the concept of "market memory" may come into play, as it marked the upper boundary of a significant consolidation region that has been forcefully breached, exposing considerable volatility. Beneath this level lies the 200-Day Exponential Moving Average (EMA), acting as a support around the 0.6754 mark. Should a breach beneath this level occur, it would likely trigger substantial selling pressure in the market.
A Retracement is Likely
In a surprising turn of events, the Reserve Bank of Australia recently implemented an interest rate hike, while the Federal Reserve opted to pause its cycle of interest rate increases. This divergence in monetary policy explains the recent bullishness of the Australian dollar. However, the Federal Reserve maintains its commitment to raising rates later in the year, potentially implying that the rally we have witnessed is not only substantial but also indicative of an even broader range being formed. In the short term, a retracement appears to be the most probable outcome, necessitating careful observation of the market's behavior near the 0.68 level. Buyers will undoubtedly be striving to push the currency pair toward the 0.70 mark.
At the end of the day, the Australian dollar initially attempted a rally but seems to be succumbing to the forces of gravity. The market's parabolic trajectory across various sectors suggests an imminent correction. The Australian dollar's classification as a risk-on currency demands consideration of overall risk sentiment. A pullback toward the 0.68 level appears logical, given its previous role as a significant resistance zone. The market's memory of this level may come into play, especially since it represents the upper boundary of a prominent consolidation area. Further support lies with the 200-Day EMA near 0.6754. The Reserve Bank of Australia's interest rate hike and the Federal Reserve's temporary halt in rate increases have influenced recent bullishness. However, the Federal Reserve's anticipated future rate hikes may contribute to the formation of a broader range. In the short term, a retracement is likely, necessitating attention to the market's behavior around the 0.68 level, with buyers aiming for the 0.70 mark.
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