The Australian Dollar is edging higher early Monday just shortly below last week’s high. Increased demand for higher risk assets continues to drive the short-covering rally that began on September 3. The catalyst behind the move is optimism over a U.S.-China trade deal after the two economic powerhouses announced the resumption of trade talks, scheduled for early October.
At 04:58 GMT, the AUD/USD is trading .6426, down 0.0002 or -0.02%.
While demand for risky assets may be underpinning the Aussie, gains are likely being capped by a report that showed China’s exports unexpectedly fell in August, pointing to further weakness in the world’s second-largest economy. August exports fell 1% on-year, customs data showed Sunday, while analysts had predicted a 2% rise according to a Reuters survey.
If buyers are able to take out last week’s high at .6862 then this will indicate that investors consider the export data “old news” and may be starting to price in a favorable outcome from the trade talks. First they have to clear out the shorts before the real buyers come in.
Daily Technical Analysis
The main trend is down according to the daily swing chart. However, momentum is trending higher. The main trend will change to up on a trade through .7082, but first, buyers have to clear out the main retracement zone in order to give buyers a chance to change the trend. A move through .6688 will signal a resumption of the downtrend.
The minor trend is up. This move combined with the closing price reversal bottom at .6688 on September 4 are generating the upside momentum.
The minor range is .6677 to .6862. Its 50% level or pivot is potential support.
The main range is .7082 to .6677. Its retracement zone at .6880 to .6927 is the next upside target. Since the main trend is down, sellers are likely to come in on a test of this area. Inside the retracement zone is a downtrending Gann angle at .6902. This makes this angle a valid upside target.
Daily Technical Forecast
Based on the early price action, the direction of the AUD/USD on Monday is likely to be determined by trader reaction to the steep uptrending Gann angle at .6848.
A sustained move over .6848 will indicate the presence of buyers. If this can generate enough upside momentum then look for the rally to possibly extend into the main 50% level at .6880, followed by the downtrending Gann angle at .6902 and the main Fibonacci level at .6927. Look for sellers on a test of any of these levels.
A sustained move under .6848 will signal the presence of sellers. The daily chart is wide open under this angle with the next target a potential support cluster at .6769 to .6768.
Every major rally following a prolonged decline begins with a short-covering rally. It’s the pullback into support that needs to attract the new buyers to form a secondary higher bottom. This is what we are looking for over the near-term. If a secondary higher bottom fails to form then look for the downtrend to resume.
This article was originally posted on FX Empire
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