The Australian Dollar is trading nearly flat early Monday as buyers take a little breather after posting three-weeks of solid gains. Investor demand for higher-risk, higher-yielding assets has been the primary driver of the rally as investors continue to increase bets that the world has seen the worst of the coronavirus impact and is on the path to recovery.
At 06:27 GMT, the AUD/USD is trading .6969, up 0.0003 or +0.04%.
The Fed’s interest rate and monetary policy decisions on Wednesday are the key event that could set the near-term tone in the Aussie. Central bank policymakers are either going to bless the on-going demand for risky asserts, or they are going to give investors a reality check by telling investors the real state of the economy and how long it is going to take to recover from the devastating effects of the coronavirus pandemic.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. However, the early inside move suggests investor indecision. Friday’s blowout U.S. Non-Farm Payrolls report numbers may have stopped the rally, at least temporarily.
A trade through .7013 will signal a resumption of the uptrend. A trade through .6402 will change the main trend to down, but this is highly unlikely. However, there is room for a normal 50% correction.
The minor trend is also up. The minor trend will change to down on a move through .6506. This will also shift momentum to the downside.
The minor range is .6506 to .7013. Its 50% level at .6759 is the first potential downside target.
The main range is .6402 to .7013. Its 50% level at .6707 is the second potential downside target.
Daily Swing Chart Technical Forecast
Traders are facing two decisions early Monday, take out .7013 and challenge the July 19, 2019 top at .7082, or take out .6930 in an early attempt to eventually challenge the minor 50% level at .6759.
I don’t like to use the term “over-bought because of some technical indicators”. I don’t think that “over-bought” can be determined by a technical indicator since it is not a function of price, but rather a function of buying volume.
In other words, if the AUD/USD is overbought then buyers will stop buying. The technical oscillator is just a coincidental indicator.
Breaking out of an inside move often triggers a volatile response so be prepared for a breakout out over .7013 to trigger a potential rally into .7082, and for a breakdown to fuel the start of a potential retracement into at least .6759 over the near-term.
Of course, it would be nice if a breakout was triggered by some major news. This is why we could see a tight trading range until the Fed announcements on Wednesday.
For a look at all of today’s economic events, check out our economic calendar.