Since the middle of May, AUD/USD has maintained a strong bearish stance that accelerated last week after the China stock market crisis. The financial meltdown and global equity rout was alleviated after the PBOC intervened with equity purchases. With the RBA decision behind us, we could see a strong bullish bounce here if price has two consecutive daily closes above the psychological .70 handle.
Price action on the AUD/USD daily chart shows that in the middle of July, the 50-day SMA crossed below the 100-day SMA. That crossover accelerated the downward move and now faces initial support from the .7091 level, which is the 78.6% Fibonacci retracement of the .6006 to 1.1079 move. If we see a fresh six-year low and the key .70 level is breached, further support may come from the .6750 zone.
Last week’s collapse may have formed a key bottom if the PBOC continue to intervene and provide liquidity to their markets. If the bullish bounce takes place, we could see price target the .7350-.7550 zone. Any major rallies above that area should be sold into.
The trade: Buy AUD/USD at .7050, with a stop loss at .6900 and take profit at .7500. The risk/reward ratio is 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading
