The Australian dollar is on the verge of breaking strong double Fibonacci support at 0.7623-41 as a technical correction to its near one-way rally of more than 11% since November finally gets underway.
A clear break of this support is likely to trigger a decline to 0.7547-55 followed by 0.7503, which is the 38.2% retracement of the AUD's November-January rally.
Wall Street's selloff on Wednesday purportedly triggered by hedge funds selling long positions in stocks to pay for losses shorting videogame retailer Gamestop nL8N2K22EA and the Federal Reserve's cautious tone on the pace of the U.S. economic recovery nL1N2K21TK have provided the immediate catalysts for a long awaited market correction.
With quite a few global stock indexes having posted record highs in January nL1N2JF0DS, the massive price moves in many shares globally are indicative of a frothy market and offer ominous signs that a deeper stock market selloff is in the offing nL4N2K22LPnL8N2K22G4.
This is likely to result in rising risk aversion, triggering a correction in the commodities and metals markets nL1N2K20IV with a knock-on effect on the AUD.
Rising coronavirus cases and the uneven distribution of vaccine rollouts are also likely to weigh on risk sentiment, thereby increasing the risk of a AUD/USD drop to 0.7500
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