The rule of thumb is that when something breaks the 61.8% retracement, it finishes the job.
That's a scary thought for AUD/USD but after five brutal days of selling in the past six days, it's certainly not unthinkingable.
What would have to happen to get there?
Some combination of these things:
- Continued -- and perhaps disorderly -- declines in Australian housing
- No visible end to covid lockdowns in China after the Party Congress
- Other signs of weakness in China, particularly in real estate
- Unrelenting USD strength on broad risk aversion
- A dovish pivot from the RBA, something that already appears to have started in New Zealand
- Global recession
None of those things are off the table at the moment and that's why the chart is so worrisome.
That said, this is looking overdone in the near term. I tend to think something is happening into quarter end that's blowing out the bond market and that buyers will show up soon.