The AUD/USD is trading lower while hovering near a six-month low reached on Friday. Traders are reacting to a government forecast calling for a smaller-than-feared budget deficit this year. However, traders still fear that this news may not fully reduce the threat of a downgrade to the country’s top credit rating.
Treasurer Scott Morrison forecasts a A$10 billion ($7.29 billion) deterioration in the government’s budget deficit over the next four years. This is likely to be satisfactory for ratings agencies Fitch and Moody’s. However, investors are still worried about the response from S&P Global Ratings, which put Australia on negative watch in July.
The main trend is down according to the daily swing chart. Momentum is pointed to the downside. The AUD/USD is currently straddling the June 16 bottom at .7285. This price may act like a pivot. If the downside momentum continues through this level then the next target will be the May 24 bottom at .7145.
The major range is the .7145 main bottom to the .7777 main top. Its retracement zone is .7386 to .7461. The market is currently trading below this zone, putting it in a weak position. The retracement zone levels are new resistance.
Based on the current price at .7277, the direction of the AUD/USD the rest of the session will be determined by trader reaction to the price cluster at .7284 to .7285.
A sustained move under .7284 will signal the presence of sellers. The first target is last week’s low at .7266. This is followed by a long-term uptrending angle at .7239. This is the last potential support angle before the .7145 main bottom.
A sustained move over .7285 will indicate the presence of buyers. Overtaking this level could generate the upside momentum needed to test the long-term uptrending angle at .7332. This is the trigger point for an acceleration to the upside with .7386 the main target.
I like the long side today on a sustained move over .7285 and the short side if .7284 fails as support. Be careful buying strength and selling weakness because of the light volume.