AUD/USD: Trying to Form Closing Price Reversal Bottom

The Australian Dollar is trading higher on Thursday after recovering from an earlier loss that sent the Forex pair to its lowest level since early February. With the market trending lower, today’s rebound is likely being fueled by massive short-covering.

Nonetheless, the move suggests the buying is greater than the selling at current price levels, putting the Forex pair in a position to post a potentially bullish closing price reversal bottom. The chart pattern won’t change the trend, but if confirmed, it could trigger the start of a minimum 2 to 3 day correction.

At 07:34 GMT, the AUD/USD is trading .7152, up 0.0025 or +0.35%. On Wednesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.72, down $0.03 or -0.05%.

Shortly after the opening, the AUD/USD was under pressure as worries about a recession in Europe and a slowdown in China engulfed risky assets, offsetting the promise of rising interest rates at home.

Early Wednesday, the Australian government released a report that showed red-hot inflation figures. The news convinced investors the Reserve Bank of Australia (RBA) can no longer keep rates at emergency lows of 0.1% and financial futures are now fully priced for a hike to 0.25% next week.

The news wasn’t especially bullish because the U.S. Federal Reserve is expected to raise its benchmark rate 0.50% after its May 3-4 monetary policy meeting.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .7458 will change the main trend to up. A move through the intraday low at .7075 will signal a resumption of the downtrend.

The new minor range is .7458 to .7075. Its retracement zone at .7267 to .7312 is the nearest upside target.

Daily Swing Chart Technical Forecast

Trader reaction to .7127 is likely to determine the direction of the AUD/USD into the close on Thursday.

Bullish Scenario

A sustained move over .7127 will indicate the presence of buyers. If this move is able to create enough upside momentum then we could see a near-term test of the retracement zone at .7267 to .7312. Since the main trend is down, sellers are likely to come in on the first test of this area.

Bearish Scenario

A sustained move under .7127 will signal the presence of sellers. If this generates enough downside momentum then look for a retest of the intraday low at .7075, followed by the February 4 bottom at .7052. The latter is a potential trigger point for an acceleration to the downside with the low of the year at .6967 the next major target, followed by the July 16, 2020 main bottom at .6963.

Side Notes

A close over .7127 will form a closing price reversal bottom on the daily chart.