AUD/USD continues to flirt with key support level since last week

The pair is down 0.4% today and erasing the advance from yesterday, moving back to test the August low of 0.6347. We’ve been here before with the low last week touching 0.6336 but ultimately, the daily and weekly close held. Will it be the same this time around? The pressure is definitely building.

With China continuing to let the yuan weaken, it’s tough for the aussie to stay afloat for now. USD/CNY is up again today to 7.28, rising back to its highest levels in two weeks. That’s part of the equation weighing on AUD/USD as a whole recently.

Besides that, the aussie side of the equation isn’t helping as the RBA begins to shift to a more dovish stance. The door is open for a February rate cut and market pricing shows the odds of a 25 bps move at ~65% now.

But for trading this week, it’s all about the dollar side of the equation. The Fed is the main event to watch on the week and that will ultimately settle the score for if we are going to get a steeper downside break in AUD/USD.

The technicals are certainly lining up for it. It’s now a case of traders looking to the Fed for confirmation tomorrow.

This article was written by Justin Low at www.forexlive.com.