Last night the Reserve Bank of Australia Governor Philip Lowe revealed they may cut interest rates in the coming months. Currently, the official cash rate is at 1.50 percent. The announcement shocked investors and the Australian dollar plunged 1.5 percent (the largest plunge experience in the last year). Will the plunge continue or is a retracement likely?
AUDUSD - Weekly
The AUDUSD weekly chart shows that the Stochastics is potentially overbought and, while price is making lower highs, the Stochastics has made a new high. This indicates a potential hidden divergence pattern that could send price down even lower. However, there are two days remaining for the bar to complete. Currently, the weekly price bar is bearish and may form a pivot high formation if it manages to close below the low of the previous bar (.7246). Reviewing the pattern on Friday afternoon when the bar completes would be prudent.
AUDUSD - Daily Chart
The AUDUSD daily chart shows that bearish divergence formed on February 1, 2019. Price has completed the retracement back to the ATR stop (blue plus sign). However, the key will be if the ATR stop can offer support. Although some FX strategists anticipate a potential test of the .7000 area, they do not expect the Aussie Dollar to go lower. However, with the weekly Stochastics indicating a potential overbought status and the daily curving down (after reaching the 80 area), price may return to test the .6830 area (low formed on January 3, 2019).
The key will be whether the ATR stop acts as support. If the ATR acts as a support, then price would return to the high at .7295 and possibly even exceed it. The next two days may be critical in determining whether the AUDUSD continues to plunge and recovers from the RBA shocking revelation of a future rate cut.