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James Hyerczyk

The Australian Dollar is trading sharply lower early Thursday for a third session this week. The weakness is being generated by the widening of interest rate differential between U.S. Government bond yields and Australian Government bond yields. This is making the U.S. Dollar a more attractive investment.

The catalysts behind the move in interest rates is rising U.S. Treasury yields and expectations of further rate hikes by the Fed. U.S. Treasury yields soared on Wednesday following the release of reports showing a jump in private sector jobs and a huge improvement in ISM Non-Manufacturing PMI. Fed Chairman Jerome Powell drove Treasury yields even higher after he hinted at more aggressive rate hikes by the Fed, if necessary.

Early today, Australia released some pretty solid trade balance data, but no one cared because that was stale data. To be successful in a rising interest rate environment, you have to be forward thinking. At this time, investors are pricing in future U.S. rate hikes. They aren’t concerned about trade data from last month.

At 0856 GMT, the AUD/USD is trading .7074, down 0.0028 or -0.41%.


Daily Technical Analysis

The main trend is down according to the daily swing chart. The session started with the main trend down and the trend was reaffirmed when sellers took out .7142 on Wednesday and .7085 on Thursday.

The AUD/USD is in no position to change the main trend to up. However, on Friday, it will enter the window of time for a possible closing price reversal bottom. This counter-trend reversal pattern is nothing to fear, however, and will likely set up fresh shorting opportunities.


Daily Technical Forecast

Based on the current price at .7074, the direction of the AUD/USD the rest of the day is likely to be determined by trader reaction to the steep downtrending Gann angle at .7074.

Crossing to the weak side of the Gann angle at .7074 will indicate the selling pressure is getting stronger. If this move creates enough downside momentum then look for a possible break into the next main bottom at .6973.

If sellers decide to take the Gann angle route to this level then we should see the AUD/USD at .6973 around October 8 to 9.

Crossing to the strong side of the Gann angle at .7074 will signal that the selling is getting weaker or the buying is getting stronger. If this move produces enough upside momentum then look for a possible test of the next downtrending Gann angle at .7194.


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