The AUD/USD is trading higher after recovering from early session weakness. It’s really not the Aussie that is strong, but the U.S. Dollar that is weak. The lack of any major economic reports today and the start of a holiday-shortened week in the U.S. may be behind the counter-trend price action.
Last week’s sell-off was fueled by rising Treasury yields and hawkish Fed speakers. Additionally, Fed Chair Janet Yellen basically told a Congressional Sub-Committee that interest rates were going to be hiked in December.
Today’s early action suggests that investors have fully-priced in the rate hike, giving short-sellers an excuse to book profits and square-positions ahead of the holiday on Thursday and the long-holiday week-end.
The major U.S. banks may decide to pack it in early so we could see a dramatic drop in volatility and volume throughout the week. It’s possible that today may be the most active for the week. Additionally, this is typically one of the slowest weeks of the year.
The main trend is down according to the daily swing chart. Today’s session began with the AUD/USD in the window of time for a closing price reversal bottom so I’m not surprised at all by today’s developing chart formation.
The first upside target is the major Fibonacci level at .7386. This is followed by the major 50% level at .7461.
On the downside, the first target is the June 16 main bottom at .7285. The next major bottom under this level is the May 24 main bottom at .7145.
Based on the current price at .7353, support is defined as today’s low at .7311. This is followed by a long-term uptrending angle at .7306 and the June 16 bottom at .7285.
If the short-covering rally continues today then it may create enough upside momentum to challenge the Fib level at .7386 then the downtrending angle at .7417. This angle will act like resistance on the initial test, but then the trigger point for an acceleration to the upside.
A close over .7332 will produce a potentially bullish closing price reversal bottom. This could lead to a 2 to 3 day counter-trend rally. Therefore, we have to conclude that the direction of the market today is likely to be determined by trader reaction to this price.