AUDUSD Range Setup (Jan 22, 2015)

The pair is currently testing support for now and may be due for a bounce back to the top of the range.

However, AUDUSD also looks prime for a breakdown, as risk aversion has been present in the markets recently. Recall that the BOC just announced a surprise interest rate cut in order to weather the fall in oil prices and its negative impact on the Canadian economy, putting traders on their toes for potential easing moves from other central banks.

Data from the Australian economy has been relatively strong though, as their latest jobs report came in better than expected. Apart from that, economic figures from China, Australia’s largest trade partner, have also shown improvements.

There are no event risks for this forex range setup today, as there are no major reports lined up from both Australia and the U.S. The ECB interest rates statement might revive risk aversion and trigger a downside break, especially if the central bank announces a large quantitative easing program.

Stochastic just made its way out of the oversold area, indicating that bears are still taking a break and that support might hold for now. A move higher could lead to a test of .8250 resistance or at least a climb until the middle of the range at the .8175 area.

The path of least resistance is to the downside though, as uncertainty in the financial markets led to stronger demand for safe-havens like the dollar and weaker demand for the higher-yielding Australian dollar. A downside break could lead to around 150 pips in losses, which is the same size as the range pattern.

By Kate Curtis from Trader's Way