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James Hyerczyk
AUD/USD

The Australian Dollar is trading nearly flat early Wednesday after confirming yesterday’s potentially bullish closing price reversal bottom. The price action suggests investors are squaring positions ahead of today’s U.S. Federal Reserve interest rate and monetary policy decisions.

Yesterday’s reversal bottom was fueled by a positive tweet from President Trump regarding the scheduling of a meeting with China’s President Xi Jinping at the G-20 Summit in Osaka, Japan. Optimistic traders read this to mean trade talks between the United States and China would resume over the near-term.

At 18:00 GMT, the Fed will release its decision on interest rates. Traders are saying there is a 20% chance of a rate cut. However, the focus will be on the Fed’s monetary policy statement and whether central bank policymakers open the door to further rate cuts later this year. Going into the announcements, traders are pricing in at least three cuts by the Fed.

At 05:32 GMT, the AUD/USD is trading .6876, unchanged.

Daily AUD/USD

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside with the formation of Tuesday’s closing price reversal bottom and today’s subsequent confirmation of the chart pattern.

A trade through .6832 will negate the closing price reversal bottom and signal a resumption of the downtrend with the January 3 bottom at .6764 the next likely downside target.

The main trend will change to up on a trade through .7022. This is highly unlikely, but there is room to complete a normal 50% to 61.8% retracement.

The short-term range is .7022 to .6832. If there is a further follow-through to the upside then its retracement zone at .6927 to .6949 will become the primary upside target.

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Daily Technical Forecast

Based on the early price action, the direction of the AUD/USD the rest of the session is likely to be determined by trader reaction to the downtrending Gann angle at .6862.

Bullish Scenario

A sustained move over .6862 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the 50% level at .6927. Since the main trend is down, look for sellers on the first test of this level.

Bearish Scenario

A sustained move under .6862 will signal the return of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into yesterday’s low at .6832. This price is a potential trigger point for an acceleration to the downside with the next major target .6764.

Overview

The short-covering rally could continue if the Fed comes across as excessively dovish. However, gains are likely to be limited because the Reserve Bank of Australia is also dovish on interest rates. The AUD/USD could plunge if the Fed indicates the first rate cut in 10 years will take place in September rather than July.

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