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AUD/USD Forex Technical Analysis – May 4, 2016 Forecast

By:
James Hyerczyk
Updated: May 4, 2016, 01:23 UTC

On Tuesday, the AUD/USD plunged after the Reserve Bank of Australia cut interest rates to a record low. Traders blamed the softer-than-expected inflation

AUD/USD Forex Technical Analysis – May 4, 2016 Forecast

On Tuesday, the AUD/USD plunged after the Reserve Bank of Australia cut interest rates to a record low. Traders blamed the softer-than-expected inflation data for the March quarter, released last week, for the 0.25 percentage point rate cut to a record low at 1.75 percent. Consumer inflation, on a quarter-on-quarter basis, saw their first bout of deflation since the end of 2008.

The RBA announced the rate cut in its opening paragraph saying the decision “follows information showing inflationary pressures are lower than expected.” The Board continued by saying the data ‘point to a lower outlook for inflation than previously forecast.”

The central bank also tightened up its language around China, noting the country’s growth rate “moderated further” in the first quarter, but recent actions by policymakers were helping support growth in the near-term.

Some experts feel there is another rate cut coming in the near future because the RBA rarely moves in isolation (one and done). So the market is likely to anticipate another cut to 1.5 percent over the next three months. Currently, investors are pricing an August rate cut at 60%. Since inflation is the trigger, it should come shortly after the release of the June quarter CPI report in late July.

Daily AUDUSD Swing Chart

The daily swing chart shows the main trend is up because of the series of higher-bottoms and higher-tops. However, momentum has been to the downside since April 21. This includes last week’s plunge after the release of the weak CPI data and yesterday’s steep sell-off.

The main trend will turn down on a trade through the last swing bottom at .7491. Taking out this level will change the trend, but may not lead to a sharp break so be careful selling weakness under this level. Today’s session begins with the AUD/USD down nine days from the top and in the window of time for a potentially bullish closing price reversal bottom.

Taking out the bottoms at .7477 and .7414 will reaffirm the downtrend. This could lead to a test of the major retracement zone bounded by .7330 to .7211. This zone is the primary downside target. A test of this zone should draw the interest of profit-takers and aggressive counter-trend buyers.

Currently, the short-term range is .7834 to .7481. If there is a rally from this low then we could see a retracement over the near-term to its retracement zone at .7657 to .7699. This zone will move down as the market moves down.

A failed rally inside this retracement zone is necessary because there has to be a secondary lower top formed in order to start an eventual downtrend. The first break from a top is usually triggered by longs bailing out and sell stops. A secondary lower top will represent the emergence of new shorts.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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