The bearish trend remains strong for AUD/USD, as further rate cuts appear certain for Reserve Bank of Australia (RBA) Governor Glenn Stevens after last night’s dismal jobs number. As I mentioned the other week, the preferred target for the RBA is for the Australian dollar to trade closer to the .8500 handle.
Price action on the daily chart displays the downward move that started on October 22nd, after AUD/USD respected the 200-day Simple Moving Average (SMA). Since the holiday season, a broadening formation has been forming and the bias is very much to see us make fresher four year lows. If we see price trade below the .8750 beyond the European close, we may finally see another leg lower on this move. Currently, key support is provided by multiple 161.8% Fibonacci expansion levels (provided by the 3-Drives to a top pattern) at the .8730 level.
If price continues to exhibit bearish behavior, a downside target of .8650 will be our immediate target and that would be followed by the .8500 RBA target. If we do see a bullish bounce key resistance may come from .8850, a price level that used to provide key support.
The trade: Sell AUD/USD .8770, with a stop loss at .8810 and a take profit at .8650. The Risk/Reward Ratio is 1:3
Edward J. Moya