AUD/USD Forex Technical Analysis – Taking out .7096 Could Extend Short-Covering Rally into .7132 – .7158

The Australian Dollar is trading higher on Wednesday after four straight sessions of losses took it to a three-week trough as optimism over a pre-election U.S. fiscal stimulus deal fueled a surge in demand for higher yielding assets.

The news is helping to offset some of the bearishness being fueled by expectations of an interest rate reduction at its November 3 monetary policy and possibly the announcement of aggressive longer-dated bond purchasing program.

At 09:08 GMT, the AUD/USD is trading .7078, up 0.0030 or +0.43%.

The Aussie had been on a downward trajectory in recent days on bets the country’s central bank will cut its cash rate further to 0.1% in November and expand its bond-buying programme.

Today’s move is likely being fueled by short-covering, and it doesn’t look like the news is going to be strong enough to trigger a change in trend.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the nearest main bottom at .7006 will reaffirm the downtrend. The main trend will change to up on a move through .7243. This is highly unlikely however.

The minor trend is also down and so is momentum, but a new minor bottom has formed at .7021.

The AUD/USD is currently trading inside a major retracement zone at .7096 to .7020. This zone is controlling the near-term direction of the Forex pair.

The minor range is .7243 to .7021. Its retracement zone at .7132 to .7158 is the primary upside target. Since the main trend is down, sellers are likely to come in on a test of this area.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the AUD/USD the rest of the session on Wednesday is likely to be determined by trader reaction to the main 50% level at .7096.

Bullish Scenario

A sustained move over .7096 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the minor 50% level at .7132, followed by the 61.8% level at .7158. Since the main trend is down, sellers could come in on the first test of this area.

Bearish Scenario

A sustained move under .7096 will signal the presence of sellers. This could trigger a quick break into a minor 50% level at .7057, followed by a support cluster at .7021 to .7020.

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