Trade Implications – AUDUSD: Hindsight is obviously 20/20, but the strongest argument in favor of Australian Dollar weakness probably came on the sharp breakdown in AUDUSD yield differentials and exceedingly one-sided retail FX trader sentiment.
Of course, the pair’s already fallen a massive 10+ percent (nearly 1100 pips!) from its April peak. Can it continue lower? Of course, and I think it will. Will it match its freefall of the past two months? Almost definitely not. It currently trades at a massive confluence of support, and the risk of a short-term bounce is very high.
That said, I still think it’s better to sell into historic declines rather than try and catch falling knives. I’ll look to sell any important bounces.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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