AUD/USD Forex Technical Analysis- Could Collapse to .7571 if .7782 Fails as Support

The AUD/USD consolidated on Friday, posting an inside move following Thursday’s dramatic closing price reversal bottom. The price action suggests investor indecision and impending volatility. It could also be indicating oversold conditions and perhaps the Forex pair is setting up for a short-covering rally.

The sell-off since the last Federal Open Market Committee meeting on September 20 indicates that Australian Dollar investors have finally realized that the Reserve Bank of Australia is not going to raise interest rates until at least the first quarter of 2018 and that the U.S. Federal Reserve is very likely to raise rates in December.

The tightening of the interest rate differential between U.S. Treasury Bonds and Australian Government Bonds indicates that investors are moving money out of the Aussie and into the Greenback because the U.S. Dollar is the more attractive investment at this time.

Daily Technical Analysis

Last week, the AUD/USD tested a critical area on the daily chart. Trader reaction to this zone will determine whether buyers linger around a little longer, or sellers wipe out the entire rally from the July bottom at .7571 to the September top at .8124.

Currently, the AUD/USD is sitting inside this range’s 50% to 61.8% retracement zone so it is essentially balanced. The zone is .7848 to .7782.

The main trend is down according to the daily swing chart. However, the market is ripe for a short-covering rally because it’s down 15 sessions from the .8124 main top and 7 sessions from the .8102 main top.

On September 28, the AUD/USD posted a potentially bullish closing price reversal bottom inside the retracement zone. This is a sign that the buying may be greater than the selling at current price levels.

As long as the reversal bottom at .7799 remains intact, we could see a meaningful short-covering rally. The first sign of strength will be a confirmation of the closing price reversal bottom. This will occur if .7860 is taken out with conviction. If this occurs then we could see a short-covering rally all the way back to the short-term retracement zone at .7951 to .7986.

If .7799 is taken out then the reversal bottom pattern will be negated. Taking out the Fibonacci level at .7782, however, is the trigger point for an acceleration to the downside. The next major target under this level is the .7571 main bottom.