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James Hyerczyk

The short-covering rally in the Australian Dollar continued for a fourth session on Friday as traders continue to alleviate the grossly oversold trading conditions. Traders started easing up on the short-side of the market early last week after the release of the ISM US Manufacturing PMI report indicated a contraction in the sector. The rally was further driven following the release of stronger-than-expected services PMI data from China.

On Friday, the AUD/USD settled at .6850, up 0.0036 or +0.53%.

The overall bullish tone for the week was fueled by an easing of tensions in Hong Kong, and the announcement of the resumption of trade talks between the United States and China for early October. The initial move from a multi-year low is being fueled by short-covering. With the Reserve Bank of Australia (RBA) expected to cut rates again before the end of the year, the rally is likely to be short-lived.


Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom at .6688 on September 3 and its subsequent confirmation.

A trade through .6688 will negate the closing price reversal bottom and signal a resumption of the downtrend. The main trend will officially turn up on a trade through .7082. This is highly unlikely, but the chances of this occurring will increase if the AUD/USD crosses to the strong side of the main retracement zone.

The minor trend is up. It changed to up last week on a trade through .6821. This move reaffirmed the shift in momentum to the upside.

The main range is .7082 to .6677. Its retracement zone at .6880 to .6927 is the next upside target. Since the main trend is down, sellers could come in on a test of this zone.

The minor range is .6677 to .6862. Its 50% level or pivot at .6769 is potential support.


Daily Swing Chart Technical Forecast

Based on the strong close at .6850 on Friday, the direction of the AUD/USD on Monday is likely to be determined by trader reaction to the main 50% level at .6880.

Bullish Scenario

A sustained move over .6880 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the main Fibonacci level at .6927. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under .6880 will signal the presence of sellers. If this move generates enough downside momentum then look for a pullback into the pivot at .6769.

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