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AUD/USD: RBA Interest Rate Cut Setup (May 7, 2013)

The RBA just cut interest rates by 25 basis points from 3.00% to 2.75% earlier in today's Asian session. This pushed AUD/USD below the support level around 1.0230 to a low of 1.0178 right after the statement.

In past rate decisions where the RBA cut interest rates, the pair usually makes a strong break to the downside then makes a small retracement prior to the European session. The pair could still pull up to the 38.2% Fibonacci retracement level before heading any lower in the later trading sessions.

A good entry point could be the 1.0230 mark, which is in line with the 38.2% Fib and the former support level. Stochastic is already heading lower on the 15-minute chart though, which suggests a further move down. After all, European and American traders have yet to react to the surprise rate cut earlier today.

A stop above the highest Fib level or at 1.0300 with a target of 100 pips or more would yield a good reward-to-risk ratio for a day trade.