AUD/USD trades near the highs at 0.7087 currently
The pair is still lower if you account for the trading over the past two days but is looking to erase the drop seen in overnight trading at the moment. Right now, a move to test the 0.7100 handle is well on the cards after breaking above the 100-hour MA (red line) @ 0.7077.
Buyers failed to move above that in Asian trading but managing to do so now eliminates the near-term bearish bias in the pair for the time being.
I'm still not convinced by the recovery in commodity currencies just yet but there are some hints at the moment that the tide is starting to recede a little. E-minis have recovered most of their morning losses while European bonds are also easing a little as the session progresses. No doubt those are calming signs, but the overbearing risk off theme isn't gone just yet.
Not when there is still the risk that US CPI data later could send markets into another spiral once again. For AUD/USD, the yields spread divergence has narrowed over the past week and that for me is one of the reasons helping to cushion the fall in the aussie against the dollar.
But as long as the Fed is still looking to hike rates into next year, there's still no reason to go against the short trade that has been working all year - aside from positioning.
The low just at 0.7043 provides a good support level and profit taking level for the time being but sellers will still be eyeing for the 0.7000 handle in the medium-term. As for upside potential, any rallies are surely to be met with offers still and right now the 200-hour MA (blue line) is the line in the sand for that. Stay below that and given the fundamentals, the trade is still for a move lower in the pair.
But move above the 200-hour MA, we're into correction territory and it opens up a new range of technical levels for the pair (we'll get there if and when the time comes).
