Selling AUDUSD in anticipation of correction

28 December 2023 116
Selling AUDUSD in anticipation of correction

The AUDUSD currency pair entered the technical resistance zone, limited by the levels of 0.6800–0.6900. This fact alone is not enough to suggest the possibility of a correction or a downward reversal.

What else in this situation can give any clues to further movement of the quotes?

First, it should be noted that the pair did not retest the previously reached peak level of 0.6690. This is an additional argument in favor of AUDUSD decline.

Secondly, December as a traditional period of seasonal weakness of the U.S. dollar is almost over, and the upcoming January, on the contrary, is a time of the U.S. currency strengthening. This is another argument in favor of the upcoming downside scenario for AUDUSD.

In terms of the seasonality, the Australian dollar tends to weaken from the second half of January. This could be counterbalanced by the seasonal strengthening of gold, which takes place in January-February. The Australian dollar is closely related to the gold price dynamics, which can push the Australian dollar up, or at least halt its decline.

Third, the difference between the interest rates of the Reserve Bank of Australia and the Fed, namely 4.35% vs. 5.5%, is still in place from a fundamental point of view. So, the U.S. currency has a greater upside potential than the Australian dollar by this term. But it should be noted that the Fed was more determined to cut rates than the RBA. The Australian regulator has been more cautious in tightening policy and intends to ease it the same way. In January, Australian and U.S. CPIs for December will be published. These estimates might have surprises that could strongly change the current trends.

Judging by these conditions, AUDUSD is expected to correct to the level of 0.6670 within two-three weeks.

The overall recommendation is to sell AUDUSD. Profit should be taken at the level of 0.6670. A Stop-loss could be set at 0.7010.

This content is for informational purposes only and is not intended to be investing advice.

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