AUD/USD Forex Technical Analysis – Short-Covering Momentum Could Drive Aussie into .7243

The Australian Dollar is edging higher early Thursday as traders attempt to claw back some of this week’s losses. The Aussie is being underpinned by a slight increase in demand for riskier assets, a dip in U.S. Treasury yields, mixed PMI data from China and better-than-expected domestic economic news.

At 06:29 GMT, the AUD/USD is trading .7204, up 0.0029 or +0.40%.

In economic news, a soft reading on Chinese manufacturing may be limiting the Aussie gains, while an improvement in the service sector is likely providing some support.

In Australia, however, a big improvement in Building Approvals and slightly-better-than-expected Private Sector Credit may be providing additional support.

Demand for riskier assets is also boosting the AUD/USD after the U.S. Senate reached a deal to avoid a government shutdown.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .7170 will signal a resumption of the downtrend. A move through .7316 will change the main trend to up.

The minor range is .7316 to .7170. Its 50% level or pivot at .7243 is the first upside target.

The short-term range is .7478 to .7170. If the main trend changes to up then its retracement zone at .7324 to .7379 will become the primary upside target area.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Thursday is likely to be determined by trader reaction to .7175.

Bullish Scenario

A sustained move over .7175 will indicate the presence of counter-trend buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the first pivot at .7243.

Since the main trend is down, look for sellers on the first test of .7243. Overtaking this level, however, will indicate the short-covering is getting stronger with the next target the resistance cluster at .7316 to .7324.

Bearish Scenario

A sustained move under .7175 will signal the presence of sellers. Taking out .7170 will indicate the selling pressure is getting stronger. This could create the downside momentum needed to challenge the August 20 main bottom at .7106.

Closing Price Reversal Bottom Formation

Taking out .7170 then closing above .7175 will form a potentially bullish closing price reversal bottom. If confirmed, this could trigger the start of a 2 to 3 counter-trend rally with .7243 the first target, followed by .7316 – .7324.