AUDUSD suffered yet another sharp selloff towards the end of last week, breaking below a key support area around .6950-.7000. Price dipped to the .6800 levels before showing signs of a potential pullback to the broken support and Fibonacci retracement levels.
Price is currently testing the 50% level near the .6930 area but a higher pullback to the 61.8% Fib at the .6950 minor psychological level might still be possible. If these levels keep gains in check, a move towards the previous lows at .6800 could be in order.
The 100 SMA is still below the 200 SMA, confirming that the path of least resistance is to the downside. Stochastic is already indicating overbought conditions but hasn’t turned lower, suggesting that the correction is still in play and that bears are still getting ready to gain the upper hand. RSI is on the move up and is nearing the overbought area.
Event risks for this week include the release of Chinese GDP and industrial production data, which might be strong drivers of overall market sentiment. Weaker than expected data could inspire another sharp stock selloff, weighing on risk appetite and investor confidence, which might drag down the higher-yielding Australian dollar.
The Chinese GDP is expected to come in at 6.9% but domestic demand has managed to stay resilient and possibly enough to keep the headline readings afloat. Export growth, on the other hand, has been markedly weaker so it might’ve weighed on business production.
As for the US dollar, the CPI readings could also prove to be catalysts as FOMC members are watching inflation closely to judge if they can afford to hike interest rates again in March. PPI numbers have been in line with expectations, as the headline figure indicated a 0.2% dip while the core figure posted a 0.1% uptick.