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Prolonged Downturn in AUD/USD Following False Breakout

Prolonged Downturn in AUD/USD Following False Breakout

The AUD/USD pair embarked on a transient bullish trajectory against the U.S. dollar early in the month. Rebounding from a horizontal support level situated at approximately 0.6300 and effecting an upward breach. The initial upswing gained momentum in the latter part of the preceding week. Coinciding with a more widespread depreciation of the U.S. dollar following the Federal Open Market Committee’s (FOMC) decision and disappointing U.S. economic data. However, prices encountered a substantial resistance barrier proximate to the 100-day simple moving average on Monday. Precipitating a sharp reversal in the exchange rate, raising questions about the authenticity of the initial breakout.

Reserve Bank of Australia’s Monetary Policy and Its Impact on AUD/USD Exchange Rate

The retreat of the AUD/USD exchange rate from its technical resistance level occurred in concert with the monetary policy announcement by the Reserve Bank of Australia a few days ago. The central bank, choosing to augment interest rates by 25 basis points to reach 4.35%. Which delivered a message of equivocation regarding the prospect of further monetary tightening. Intimating that the current cycle of interest rate hikes may be approaching its conclusion. The circumspect communication by the RBA exacerbated the prevailing fragility of the Australian dollar. Thereby engendering a more intricate dynamic for the Antipodean currency.

Also Read: The Reserve Bank of Australia To Push rate to 4.35%

Analyzing AUD Price Dynamics and Potential Scenarios

In the context of the foreseeable future, it is imperative to maintain a vigilant focus on the price dynamics surrounding the pivotal 0.6400 level. Coinciding with the 50-day simple moving average. The erosion of this critical support zone could potentially amplify the prevailing selling pressure in the short term. Consequently steering the currency pair toward the next substantial floor at 0.6350. Although a period of consolidation within this range might transpire during a retracement. The eventual breakdown has the potential to facilitate a retesting of the yearly lows, positioned approximately at the 0.6300 level.

On the contrary, in the event that AUD/USD stabilizes and initiates a rebound from its current position, it would confront a significant resistance barrier at 0.6460. A successful breach of this technical threshold could serve as a magnet for renewed market interest, thereby laying the foundation for an upward trajectory towards 0.6510. The pivotal achievement of surmounting this level is paramount to validate the conclusion of the prevailing bearish phase and herald the advent of a sustained recovery for the Australian dollar. In such an optimistic scenario, bullish sentiment may set its sights on the 200-day simple moving average.

Source: Daily FX

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