Thursday's 'flash crash' in the Australian dollar during the twilight zone before Asia was fully open is highly reminiscent of a similar, much larger move in sterling on October 7, 2016 that signalled a major low was in place.
Technically, it is a blowoff low - such moves are most often indicative of capitulation and signal a turning point in a trending market, as was the case for GBP/USD in 2016.
The move will have taken out any remaining long AUD/USD positions, leaving the market highly vulnerable to a squeeze higher in the coming weeks.
In the short term, it is wise to keep an eye on tonight's AUD/USD close, following U.S. payrolls data for December and a keenly awaited panel discussion between Fed Chair Powell and his predecessors, Yellen and Bernanke.
A close above Thursday's high at 0.7019 and the 10-day moving average at 0.7031 would be positive technical signals for the AUD/USD and suggest that we will see higher levels next week.
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