Introduction:
The AUD/USD pair experienced a sharp drop in the London fix and around the Wall Street cash open, causing significant damage to the technical structure. Many traders who bought the break of 0.7000 on the hourly chart were caught off guard and are now waiting for a potential correction before the next move lower.
Correction to 50% Mean Reversion Area: After the sharp drop, the price corrected to a 50% mean reversion area before plummeting again to dynamic trendline support. This correction could signal a potential opportunity for the bulls to make a move, encouraged by the M-formation pattern. The M-formation pattern is a reversion pattern that could lead to a move towards the 0.6970s in a 61.8% Fibonacci retracement.
Downside Target:
However, traders should remain cautious as the downside target remains near 0.6920/10, which guards the significant level of 0.69 the figure. A break below this level could signal a further move lower, potentially towards the next significant support level of 0.6850.
Higher Time Frame Traders Caught Off Guard: The higher time frame traders who bought the break of 0.7000 on the hourly chart were caught off guard as the price subsequently dropped from the day’s high of 0.7011 to a New York session low of 0.6942. The sharp drop has caused significant damage to the technical structure, and traders should remain cautious in the coming days.
Potential Correction Before Next Move Lower: However, the hourly charts illustrate that there are now prospects of a correction higher before the next move lower. The potential correction could provide an opportunity for the bulls to make a move towards the 0.6970s. Still, traders should remain cautious, given the significant downside target of 0.6920/10.
Conclusion:
In conclusion, the AUD/USD pair has experienced a sharp drop, causing significant damage to the technical structure. Traders who bought the break of 0.7000 on the hourly chart were caught off guard and are now waiting for a potential correction before the next move lower. The correction to a 50% mean reversion area could provide an opportunity for the bulls to make a move, but traders should remain cautious, given the significant downside target of 0.6920/10. The next few days will be critical for the AUD/USD pair, and traders should remain vigilant and react quickly to any potential opportunities or risks.
