AUD/USD Forex Technical Analysis – Talking Out .7126 Could Trigger Counter-Trend Rally into .7167

Heightened stock market volatility and another steep drop in U.S. equity prices helped drive the Australian Dollar into its lowest level since February 11, 2016 last week. Traders were also reacting to concerns over the lingering trade dispute between the United States and China. Weakening emerging markets and a steep drop in the Chinese Yuan also encouraged investors to sell the Aussie.

This week, investors will continue to watch the stock market for direction, however, they will also get the opportunity to react to a new quarterly consumer inflation report and U.S. labor market data.

Last week, the AUD/USD settled at .7087, down 0.0033 or -0.46%.

Weekly Swing Chart Technical Analysis

The main trend is down according to the weekly swing chart. A trade through .7020 will signal a resumption of the downtrend. The weekly chart is wide open to the downside with the next major target the January 15, 2016 main bottom at .6826.

The main trend will change to up on a move through .7314.

The short-term range is .7314 to .7020. Its retracement zone at .7167 to .7202 is the first upside target. Since the main trend is down, sellers are likely to come in on the first test of this zone.

The main range is .7484 to .7020. Its retracement zone at .7252 to .7307 is the next upside target.

Weekly Swing Chart Technical Forecast

Based on last week’s price action, the direction of the AUD/USD this week is likely to be determined by trader reaction to last week’s low at .7020.

Bullish Scenario

A sustained move over .7020 will indicate the presence of buyers. If this move creates enough upside momentum then look for a potential surge into the short-term retracement zone at .7167 to .7202.

Bearish Scenario

Taking out .7020 and sustaining the move will signal the presence of sellers. If this move creates enough downside momentum then we could see an eventual break into .6826.

Potential Closing Price Reversal Bottom

Due to the prolonged move down in terms of price and time, the week begins with the AUD/USD in the window of time for a potentially bullish closing price reversal bottom. Taking out .7020 will signal a resumption of the downtrend, but regaining last week’s close at .7087 will put the Forex pair in a position to post a closing price reversal bottom. This could lead to the start of a 2 to 3 week, counter-trend rally.