AUD/USD Forex Technical Analysis – Confirmation of Friday’s Reversal Should Lead to Test of .6668 to .6687

The Australian Dollar posted a dramatic reversal to the upside on Friday after hitting an 11-year low earlier in the session. The Aussie was driven lower early by escalating concerns over the economic impact of the coronavirus. But prices rebounded during the U.S. session after a pair of PMI reports showed U.S. business activity in both manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the coronavirus.

On Friday, the AUD/USD settled at .6627, up 0.0014 or +0.21%.

The IHS Markit flash services sector Purchasing Managers’ Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016.

Economists polled by Reuters had forecast a reading of 53, down slightly from January’s final reading of 53.4. A reading below 50 indicates contraction.

The services sector new business index dropped to 49.7, the lowest since October 2009, from 52.5 last month.

Daily Technical Analysis

The main trend is down according to the daily swing chart, however, momentum may be getting ready to shift to the upside with the formation of the closing price reversal bottom.

A trade through .6639 will confirm the closing price reversal bottom. This could trigger a 2 to 3 day counter-trend rally or a 50% to 61.8% retracement of the last break. A move through .6586 will negate the closing price reversal bottom and signal a resumption of the downtrend. The main trend will change to up on a trade through .6750.

The short-term range is .6750 to .6586. Its retracement zone at .6668 to .6687 is the first potential upside target zone. Since the main trend is down, sellers could come in on the first test of this area.

Short-Term Outlook

The short-term direction of the AUD/USD is likely to be determined by trader reaction to Friday’s high at .6639.

Taking out .6639 will confirm the closing price reversal bottom. This could trigger a quick surge into a pair of downtrending Gann angles at .6654 and .6662. Sellers could come in on the first test of these angles.

Taking out .6662 will indicate the short-covering is getting stronger with the short-term 50% level at .6668 the first upside target, followed by the Fibonacci level at .6687.

The inability to take out or sustain a rally over .6639 will signal the presence of sellers. The first downside target is the mid-point of Friday’s range at .6613. If this price level fails then look for the selling to possibly extend into the closing price reversal bottom at .6586. Taking out this level will negate the closing price reversal chart bottom chart pattern and signal a resumption of the downtrend.