The Australian Dollar is trading lower on Wednesday after data from the Australian Bureau of Statistics (ABS) showed Australia suffered its worst economic fall in quarterly gross domestic product on record last quarter as the coronavirus pushed the country into recession. Sellers are also following through to the downside after the formation of a potentially bearish closing price reversal top the previous session.
At 07:49 GMT, the AUD/USD is trading .7349, down 0.0025 or -0.34%.
Data from the ABS on Wednesday showed the country’s A$2 trillion ($1.47 trillion) economy shrank 7% in the three months to end-June from a 0.3% in the March quarter. The country joins the United States, Japan, UK and Germany in technical recession, defined as two straight quarters of decline, in Australia’s first such downturn since 1991.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. However, momentum shifted to the downside with the formation of the closing price reversal top and the subsequent confirmation of the chart pattern earlier today.
A trade through .7414 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a move through .7136. This is highly unlikely today, but there is room for a normal 50% to 61.8% correction.
The short-term range is .7136 to .7414. Its retracement zone at .7275 to .7242 is the primary downside target.
The major support zone is .7123 to .7055.
Tuesday’s closing price reversal top set in motion a number of events that were confirmed by today’s follow-through selling pressure. The news about the recession is the catalyst behind the confirmation.
The closing price reversal top is not a change in trend. However, it could lead to a 2 to 3 day correction with .7275 to .7242 the best downside target. Buyers are likely to show up on a test of this area.
The first leg down from a top is usually fueled by long-liquidation and profit-taking. If this market is heading lower, then the best shorting opportunity will be following a retracement of the first leg down.
Typically, a market will make an “M” formation that signals that a secondary lower top has been formed.
Essentially, we’re looking for a short-term break into at least .7275. All bets will be off if buyers return to take out .7414, thereby negating the closing price reversal top.
For a look at all of today’s economic events, check out our economic calendar.