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James Hyerczyk

After posting a dramatic reversal to the upside on Wednesday and following through to the upside the next session, the Australian Dollar is going out with a whimper on Friday. Even though it’s in a position to finish lower for the week, it did regain the January 3 bottom at .6764 after a plunge to .6677. This probably means that traders who sold weakness through this level are trapped. If they can’t get out, then aggressive counter-trend buyers will force them out at much higher levels. This is the play we’ll be looking for early next week.

At 20:51 GMT, the AUD/USD is trading .6784, down .0017 or -0.26%.

Let’s face it, we’re not going to hear from the Reserve Bank of Australia until September 3 so I think there is plenty of time for a good, old-fashioned short squeeze.


Daily Technical Analysis

The main trend is down according to the daily swing chart. The main trend will change to up on a trade through .7082. This is highly unlikely to occur over the near-term, but there is room to rally into a short-term retracement zone. This move may be necessary to relieve some of the excessive selling pressure and to drive out the weaker shorts in order to set up fresh shorts at more favorable price levels.

A trade through .6677 will signal a resumption of the downtrend. The daily chart is wide open under this level with the next major target the March 3, 2009 main bottom at .6285.

The short-term range is .7082 to .6677. Its retracement zone at .6880 to .6927 is the primary upside target. Since the trend is down, sellers are likely to come in on a test of this area.


Daily Technical Forecast

Despite Friday’s lower close, the AUD/USD held above a downtrending Gann angle at .6782 all session. This angle, moving down at a rate of .0020 per day, has been guiding the Forex pair lower since the July 19 main top at .7082. This angle drops down to .6762 on Monday. So closing above this price on Friday put the Aussie in a strong position for Monday’s opening.

An uptrending Gann angle came in at .6757 on Friday. This held as support although not really tested. This angle moves up to .6797 on Monday.

Given the movement in the angles, crossing to the strong side of the uptrending Gann angle at .6797 will put the AUD/USD in a strong position on Monday.

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