Disruptions to the US economy have forced a re-pricing of the timing of the tapering of the US Fed's stimulus program. Markets now expect tapering to begin around the end of Q1 2014, rather than this year. Naturally, the USD weakened. Combined with stronger China data, this has pushed the AUD/USD to five month highs, and an overbought reading on the RSI:
Note that the overbought signal co-incides with the 50% retracement of the drop from 1.06 to 0.88. While Fibonacci levels and RSI readings by themselves are weaker indicators, the two combined may give traders greater confidence in selling AUD/USD. Note how the pair pulled back from the 38.1% level on an overbought RSI reading (although of course, past performance is not necessarily a guide to the future).
Today's CPI reading may provide the trigger for a sell off by focusing market attention on lower inflation levels, giving the RBA room to further lower interest rates. While this is not my view (barring an economic disaster, I expect we are at the lows of this interest rate cycle), renewed focus on the possibilities may be enough to drive AUD/USD back to support around the 0.95 level.
I'll set a stop above the recent high at 0.9730, targeting 0.9525, to give a reward to risk ratio above 5:1