After being supported by increased demand for risk the last five sessions, the Australian Dollar is showing early signs of topping on Tuesday as fundamental and technical factors come together to slow down the buying.
Fundamentally, the Aussie hit its low of the session after a report showed Chinese consumer inflation data came in a little higher than forecast. CPI was 2.8% versus a 2.6% estimate. The producer price index (PPI) fell 0.8%, slightly better than the -0.9% forecast. This creates a potential problem for policymakers because they have been running a loose ship to support the economy and can’t afford to let consumer inflation get out of hand.
A weak NAB Business Confidence report also weighed on the currency, coming in at 1, down from the previously reported 4. The report suggests there is unlikely to be an imminent turnaround in business conditions, NAB Chief Economist Alan Oster said.
At 06:37 GMT, the AUD/USD is trading .6859, down 0.0051 or -0.07%.
Daily Technical Analysis
The main trend is up according to the daily swing chart. However, momentum is trending higher.
The main trend will change to up on a trade through .7082. This is highly unlikely, however, until the Aussie overcomes the main retracement zone. A trade through .6677 will signal a resumption of the downtrend.
The minor trend is up. This is controlling the upside momentum. The minor trend changes to down on a trade through .6688.
We’re also watching for a closing price reversal top.
The main range is .7082 to .6677. Its retracement zone at .6880 to .6927 is potential resistance. This zone is controlling the near-term direction of the AUD/USD.
The new short-term range is .6688 to .6876. If the AUD/USD starts to weaken then look for a break into its retracement zone at .6782 to .6760.
Daily Technical Forecast
The current price at .6859 is slightly below the major 50% level at .6880. Yesterday’s high at .6876 also fell short of this level.
Look for a bearish tone to develop if sellers continue to defend .6880. Taking out yesterday’s low at .6837 will indicate the selling is getting stronger. This will also make .6876 a new minor top.
If the downside momentum begins to increase, the AUD/USD could accelerate to the downside with the first target an uptrending Gann angle at .6788, followed by the short-term 50% level at .6782.
Overcoming .6880 will indicate the presence of buyers. Crossing to the strong side of an uptrending Gann angle at .6888 and a downtrending Gann angle at .6897 will put the AUD/USD in a bullish position.
Taking out .6876 then closing lower will form a closing price reversal top. This will indicate the selling is greater than the buying at current price levels. This could trigger the start of a 2 to 3 day correction.
This article was originally posted on FX Empire
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