AUD/USD: forecast after triple-digit drop this month

After falling sharply from March, AUD/USD is finding support around 0.7200. Where will it go next as the Fed's decision looms?

The USD strengthened across the board in March as the war in Ukraine triggered a flight to safety in the financial markets. It even strengthened against the JPY, the proverbial safe-haven currency.

Tomorrow, the market expects the Fed to raise interest rates for the first time since the pandemic began. As a result, this will add another reason to buy the USD against its G10 peers, but is the decision already priced in?

With Australia far from the conflict zone, some investors initially reacted to the news of the start of the war in Europe by buying the Australian dollar. Thus, the AUD/USD exchange rate traded as high as 0.7440 as the euro plummeted.

But now it has fallen by almost three big numbers (i.e. three hundred pips) a day ahead of the Fed. Is it safe to buy AUD/USD here?

AUD/USD finds dynamic support on the lower edge of a bullish channel
The recent uptrend started during February. AUD/USD bounced off 0.7, a pivotal level, and has built a series of higher highs and lows since then.

The series still holds.

Even the aforementioned decline was not strong enough to invalidate it. Because such a series defines an uptrend, the bias remains bullish, not least because the market has now reached a dynamic support.

On the other hand, a drop below 0.71 would invalidate the bullish bias. Moreover, downward pressure would build up on such a move, and a new attempt at the 0.7 pivot zone could be in the cards.

But until that happens, investors will probably try to push the market above 0.73 and into the upper half of the bullish channel. Such a move would maintain the bullish bias and a further rise could be possible.

Overall, the Fed holds the key to the US dollar's next move. In addition, news of the ongoing war in Europe could easily change market sentiment. At such times, traders are better off keeping their trade sizes small.