The Aussie/dollar (AUD/USD) is in the midst of a strong rebound after price once again respected the .7550 region. Last night the currency pair got a boost after the Reserve Bank of Australia kept rates steady at 2.0% and failed to signal a future rate cut despite a sluggish economy. Mining spending remains vulnerable to further cuts and elevated housing prices are raising fears of a housing bubble. The rebound also benefited to some profit taking that hit the U.S. dollar early in Europe.
Price action on the AUD/USD daily chart shows that longer-term bearish move has stabilized and consolidated for most of 2015. If the partial recovery continues, immediate resistance may come from both the 50- and 100- day Simple Moving Average(s), which are trading around the .7800 handle. If upside momentum remains strong, price could ultimately target .7880 which is the 50.0% Fibonacci retracement of the two-week drop that occurred at the end of last month.
If the bullish advance stalls out before Friday morning, traders may want to consider taking off any bearish bets against the U.S. dollar. If the U.S. has a solid non-farm payroll report, the AUD/USD could see a next major leg down that could take the currency pair towards the .7400 handle. Initial forecasts for May’s employment report is targeting a gain of 226,000 jobs. If we see a reading below the 200,000 level, we could see the Australian dollar tentatively breakout higher above its recent trading consolidation range.
The trade: Buy AUD/USD at .7675, with a stop loss at .7595 and take profit at .7880. The risk/reward ratio is just under 1:3
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Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading
