AUD/USD came under fresh selling pressure after the RBA kept rates on hold and central bank Governor Glenn Stevens said a weaker currency is still needed. The Australian currency fell over 1.2% toward the .7400 handle.
Last week, price action made an important daily close below the key .7532- .7940 range. This key break allows room another major slide. With iron ore prices remaining vulnerable and weakness persisting in non-mining activity, we could see Aussie dollar drop towards the psychological .70 handle.
Currently the AUD/USD daily chart is displaying a potential bullish butterfly pattern at the .7358 level. Point D is targeted with the 127.2% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C rally. If price does respect this potential fresh low, a bullish bounce could target the .7500 area before the longer-term bearish trend returns.
If we do not see a bullish bounce and the pattern is quickly invalidated, we could see price immediately taret the .7150 area.
The trade: Sell AUD/USD at .7520, with a stop loss at .7620 and take profit at .7320. The risk/reward ratio is 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading