AUD/USD Strengthening After Test of Support Cluster

The Australian Dollar is inching lower on Monday after clawing back most of its earlier loss. The Aussie was on the defensive from the opening as yield spreads continued to widen in favor of their U.S. counterpart.

The currency began to strengthen throughout the session as commodity prices edged higher and the dollar weakened despite another surge in U.S. Treasury yields. A successful test of a key technical support area also contributed to the rebound.

At 10:13 GMT, the AUD/USD is trading .7458, down 0.0002 or -0.03%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $73.91, down $0.24 or -0.32%.

In other news, traders have more than fully-priced for a first rate hike from the Reserve Bank of Australia (RBA) in June, following a hawkish turn last week.

That will still trail far behind the Federal Reserve, however, which has seen the spread on 10-year bonds over Treasuries narrow to 27 basis points from a top of 50 basis points in March.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the intraday low at .7418 will signal a resumption of the downtrend. A move through .7661 will change the main trend to up.

The AUD/USD is currently trading inside a long-term retracement zone at .7429 to .7538. The short-term retracement zone support is .7413 to .7354. The two zones combine to form a support cluster at .7429 to .7413. This zone stopped the selling earlier in the session at .7418.

On the upside, the nearest resistance is a pair of Fibonacci levels at .7538 and .7568.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Monday is likely to be determined by trader reaction to .7429 and .7413.

Bullish Scenario

A sustained move over .7429 will indicate the presence of buyers. If this move creates enough short-term momentum, we could see a counter-trend retracement into .7538 to .7568.

Bearish Scenario

A sustained move under .7413 will signal the presence of sellers. This could trigger an acceleration to the downside with the short-term Fibonacci level at .7354 the next likely target.