AUD/USD Forex Technical Analysis – Needs to Stay Under .7733 to Sustain Selling Pressure

The AUD/USD finished sharply lower on Wednesday in response to a weaker-than-expected Australian consumer inflation. Not only did the weak numbers erase the possibility of a rate hike by the Reserve Bank of Australia over the short-run, but the price action suggests investors may have taken out the possibility of a rate hike in 2018.

Given the recent comments by the RBA, I don’t think the central bank is considering a rate cut. It would take seriously low inflation, a weaker labor market and a drop in business growth for the RBA to even consider reducing interest rates at this point.

 

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, the Forex pair is down nine sessions from its last main top, so it’s in the window of time for a potentially bullish closing price. This probably won’t lead to a change in trend, but it’s likely to trigger a short-covering rally.

The main range is .7571 to .8124. Its retracement zone is .7848 to .7782. After straddling this zone for over a month, the market accelerated to the downside when the bottom was taken out on Wednesday. This is giving the AUD/USD a strong downside bias.

The new resistance is the former main bottom at .7733 and the Fibonacci level at .7782.

The daily chart is wide open to the downside. If the selling pressure continues then we could see an eventual test of the July 5 bottom at .7571.

The key level to watch on Thursday is the old bottom at .7733. Overcoming this level will mean the sell-off into .7689 was driven by sell-stops rather than aggressive selling. This would also trap bearish traders who sold weakness. This could fuel a short-covering rally if these weak shorts are forced to cover.

Essentially, if the market is headed to .7571 over the near-term then I’d like to see sellers come in to defend the trend on a rally back to .7733.