The Australian dollar versus the US dollar currency pair made a new low at 0.6676 and then retraced strongly. Would this low lead to a strong rally or it is just a pause of the descending movement?
Long-term perspective
The downwards movement that began after confirming the double resistance marked by the upper line of the descending channel and the resistance area of 0.7055 and 0.7013 almost touched the lower boundary of the descending channel. This renders the wave as a full-fledged impulse that is now passing along a correction or — at least — a consolidative phase.
As for the consolidative phase, a good limit for it would be played out by the resistance of 0.6800. In this case, as long as the price oscillates under the level, aggressive traders could short the pair. On the other hand, more conservative traders would wait for a false piercing of 0.6800, a piercing the sole purpose of which is to confirm 0.6858 or the previous low — 0.6831 — as resistance. After the confirmation, the price will retract beneath 0.6800 triggering their shorting opportunity.
In the case of an actual retracement, there are two things that must happen. First, the price has to make another short leg down, one that would not overrun 0.6676. This could be seen by the traders as a shorting opportunity, while in fact the purpose of the price is to print a bottoming structure. By the way, even if it overshoots 0.6676, a strong new appreciation would count as a bottoming structure just as well. The second thing that must happen is the appreciation to the previous major support area of 0.6858, with the purpose of it being confirmed as resistance.
Despite of which of this scenarios will materialize, the target is the 0.6500 psychological level. Only a confirmation of 0.6858 as support has the possibility to postpone — for a shorter or greater while — a new leg down.
Short-term perspective
Plotting a Fibonacci retracement on the last decline points out two interesting facts. The first one is that the rise almost touched the 38.2 level, which is a classic level for the price to retrace to. The second is the fact that 23.6 acts as if it would want to serve as support.
The 23.6 and 11.4 could be confirmed as support levels and facilitate an appreciation to the 50.0 level which corresponds to the technical level of 0.6865, which in turn aligns with the expected daily resistance of 0.6858.
Levels to keep an eye on:
D1: 0.6858 0.6800
H4: 0.6865 and the Fibonacci retracement levels, mainly 50.0 38.2 23.6 and 11.4
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