AUD/USD Forex Technical Analysis – Short-Covering Rally Could Extend into .7097 to .7123 Before New Sellers Arrive

The Australian Dollar closed higher on Friday, posting its second straight day of gains following a steep six-session sell-off. It probably wasn’t increased demand that drove the Aussie higher, but rather a weaker U.S. Dollar.

The greenback was pressured by a report which showed the U.S. Core Personal Expenditures Consumption Price Index, the Federal Reserve’s preferred inflation gauge, increased by only 1.3% versus a 1.8% reading the prior quarter. This news offset a report which showed U.S. Gross Domestic Product (GDP) increased at a 3.2 percent annualized rate last quarter, versus a 2.0 percent estimate.

Demand for the U.S. Dollar weakened as the weak inflation data likely means the U.S. Federal Reserve will continue with its dovish tone in this week’s central bank policy statement.

On Friday, the AUD/USD settled at .7039, up 0.0022 or +0.32%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6988 will signal a resumption of the downtrend. The next downside target is the January 3 main bottom at .6764. The main trend will change to up on a move through .7206. This is highly unlikely due to the bearish fundamentals, however, there is room to the upside for a normal 50% to 61.8% retracement.

The main range is .7394 to .6764. Its retracement zone at .7079 to .7153 is resistance. It also controls the longer-term direction of the Forex pair.

The intermediate range is .6764 to .7296. Its retracement zone at .7030 to .6967 is support. This zone provided support at .7003 on March 8 and at .6988 on April 25.

The short-term range is .7206 to .6988. Its retracement zone at .7097 to .7123 is the next upside target. It falls inside the major retracement zone at .7079 to .7153. Since the main trend is down, look for sellers to show up on a test of this short-term area.

Daily Swing Chart Technical Forecast

Based on Friday’s price action and the close at .7039, the direction of the AUD/USD is likely to be determined by trader reaction to the intermediate 50% level at .7030.

Bullish Scenario

A sustained move over .7030 will indicate the presence of buyers. If this creates enough upside momentum then look for the rally to extend into a series of retracement levels at .7079, .7097, .7123 and .7153. Needless to say, any rally is likely to be a labored event.

Bearish Scenario

A sustained move under .7030 will signal the return of sellers. This could lead to a retest of last week’s low at .6988, followed by the intermediate Fibonacci level at .6967.

The Fib level is a potential trigger point for an acceleration to the downside. The daily chart indicates there is plenty of room to the downside with the next major target the March 3 bottom at .6764.