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James Hyerczyk
Australian Dollar

The Australian Dollar touched its highest level since February 2019 on Friday, but at the end of the session, buyers couldn’t hold onto those gains and the currency finished lower. With the U.S. Dollar gaining against most major currencies, the strong reversal to the downside could be indicative of a short-term top.

We’re going to have to determine by the price action on Monday if the price slide was fueled by end-of-the-month profit-taking and position-squaring, or if it was generated by legitimate selling or shorting due to a change in sentiment.

On Friday, the AUD/USD settled at .7142, down 0.0053 or -0.74%.

Early in the session on Friday, the AUD/USD was supported by a survey out of China showing factory activity expanded in July for the fifth month in a row, beating analysts’ expectations. Overall, throughout the month, the Aussie benefited from China’s economic recovery with its reliance on infrastructure heavy commodity intensive capital investment.

The AUD/USD was also supported by a combination of the improvement in risk sentiment and key commodity price drivers. Additionally, the widening in real bond yield differentials after U.S. rates tanked is also seen providing upside momentum.


Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Friday when buyers took out the February 21, 2019 main top at .7207.

A trade through .7064 will change the main trend to down, but Friday’s closing price reversal top is already offering evidence that the selling may be greater than the buying at current price levels.

The minor range is .7064 to .7227. Its 50% level or pivot is .7145.

The short-term range is .6833 to .7227. If the trend changes to down, then look for a test of its retracement zone at .7030 to .6983.


Short-Term Outlook

The closing price reversal top will be the focus on Monday because trader reaction to this chart pattern will tell us if momentum is shifting to the downside.

On the bearish side, a trade through .7133 will confirm the chart pattern. If this move generates enough downside pressure to take out the minor bottom at .7121 then the minor trend will change to down and momentum will officially turn lower.

The daily chart indicates there is plenty of room to the downside under .7131 with .7064 the next likely target.

On the bullish side, the failure to follow-through to the downside and a sustained move over .7146 will signal the presence of buyers. If this move develops then we could easily see a retest of .7227 especially if the U.S. Dollar starts out weak in August.

For a look at all of today’s economic events, check out our economic calendar.

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