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James Hyerczyk

A rebound in China’s equity markets is helping to underpin the Australian Dollar, which is often viewed as a close proxy to China’s economy. The rally started after a recovery in mainland Chinese stocks following comments from the country’s securities regulator.

According to reports, the rally in the mainland Chinese stock market started after the country’s securities regulator said it would improve market liquidity and guide more long-term capital into the market.

The China Securities Regulatory Commission turned the market higher after it said it will encourage share buybacks and mergers and acquisitions by listed firms, reduce unnecessary interference in trading, and create a level playing ground for investors.

At 1222 GMT, the AUD/USD is trading .7096, up 0.0040 or +0.56%.


Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside on Monday. A trade through .7020 will reaffirm the downtrend. This is followed by the February 9, 2016 main bottom at .6973. The main trend will change to up on a trade through .7160.

The minor trend is up. It turned up on Monday when buyers took out .7107. This shifted momentum to the upside.

The short-term range is .7160 to .7020. Its retracement zone at .7090 to .7107 is currently being tested. Since the main trend is down, this zone is going to act like resistance on the initial test. These sellers are going to try to form a secondary lower top. The counter-trend rally will strengthen over .7107.

The main range is .7314 to .7020. Its retracement zone at .7167 to .7202 is the primary upside target.


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 short-term 50% level at .7090.

Bullish Scenario

A sustained move over .7090 will indicate the presence of buyers. This could trigger a move into the Fib level at .7107 and yesterday’s high at .7109.

The daily chart shows there is plenty of room to the upside over .7109. If momentum can build on the move we should see a test of .7160 to .7167 over the near-term.

Bearish Scenario

A sustained move under .7090 will signal the presence of sellers. The first downside target is a pair of Gann angles at .7074 and .7060. If .7060 fails as support then look for the selling to extend into the next uptrending Gann angle at .7040.

Basically, the AUD/USD is testing a short-term retracement zone. Trader reaction to this zone at .7090 to .7107 will tell us if the bulls or the bears are in control.

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