AUD/USD Forex Technical Analysis – October 26, 2016 Forecast

The AUD/USD is trading sharply higher on Wednesday, helped by a better-than-expected Australian Consumer Inflation report that dampened the chances of a Reserve Bank of Australia interest rate hike. The quarterly CPI jumped 0.7%, better than the previous 0.4% and th0.5% forecast. Trimmed Mean CPI came in as expected at 0.4%.

The strong quarterly performance meant that the annual pace of core inflation edged up for the first time in over a year, leading investors to eliminate almost any chance of a cut in rates next week. The Reserve Bank of Australia holds its monthly policy meeting on November 1.

Despite the strong rally, the market still hasn’t exceeded last week’s high at .7734. This was formed in reaction to a disappointing Australian jobs report. That being said, although the RBA may declare neutrality at this meeting, it will certainly have to address the jobs issue.

Technical Analysis

The main trend is up according to the daily swing chart. A trade through .7734 will signal a resumption of the uptrend. A new main bottom was formed at .7587. A trade through this bottom will change the main trend to down.

The short-term range is .7734 to .7587. Its retracement zone is .7660 to .7678. The AUD/USD is currently trading on the strong side of this zone, giving it an upside bias.

The intermediate retracement zone is .7620 to .7593. The major retracement zone is .7588 to .7553. The combination of these two retracement zones makes .7588 to .7593 the best support area. This area held as support three times over the past week.

Forecast

Based on the current price at .7679 (1009 GMT) and the earlier price action, the direction of the AUD/USD the rest of the session is likely to be determined by trader reaction to the short-term Fibonacci level at .7678.

A sustained move over .7678 will indicate the presence of buyers, however, the rally may be labored because of a series of potential resistance angles at .7694, .7714 and .7724. The latter is the last potential resistance before the .7734 main top.

A sustained move under .7678 will signal the presence of sellers with the first target the short-term 50% level at .7660. Crossing to the weak side of the downtrending angle at .7654 will indicate the selling is getting stronger with .7620 the next target.

Watch the price action and read the order flow at .7678. Trader reaction to this level will tell us if the buyers are still coming in to support the rally, or if sellers are regaining control.