The Australian Dollar is trading higher on Monday in reaction to a surprise victory by Australian Prime Minister Scott Morrison over the week-end. Short-sellers are aggressively covering their positions in reaction to the news because Morrison’s victory is expected to provide stability to the country’s economic outlook. Prior to the election, traders had feared a win for the less-business-friendly center-left Labor party could have undermined growth.
At 06:09 GMT, the AUD/USD is trading .6920, up 0.0053 or +0.77%.
Daily Technical Analysis
The main trend is down according to the daily swing chart. A trade through .6864 will signal a resumption of the downtrend. The main trend will change to up on a trade through .7069. This is highly unlikely, but there is room to the upside for a short-term correction.
The minor trend is also down. A new main bottom has formed at .6864. A trade through .7019 will change the minor trend to up. This will also shift momentum to the upside.
The nearest resistance is a Fibonacci level at .7967, followed by a 50% level at .7030.
Daily Technical Forecast
The early upside momentum on Monday has created support at an uptrending Gann angle at .6886. This is followed by the minor bottom at .6864. If this level fails then look for the selling to possibly extend into the next uptrending Gann angle at .6824. This is the last potential support angle before the .6764 main bottom.
Change in Sentiment, Not in Trend
Short-covering and aggressive speculative buying is driving the price action today. If the change in sentiment continues over the near-term then look for the rally to possibly extend into the Fibonacci level at .6967, followed closely by the downtrending Gann angle at .6976.
Professional currency money managers just like most hedge fund managers, follow “The Herd Theory”. So when one starts to exit shorts aggressively, others tend to follow then ask questions later. Therefore, we expect to see a solid short-covering rally over the near-term.
Keep in mind that other than aggressive speculative buyers, smart money is not going to chase the Aussie higher, looking for a “Home Run” trade. Most professionals will be making risk adjustments to their portfolios and not trying to establish new bullish positions.
Also note that it is possible for short-term rates to rise, while the market still believes the RBA will cut rates. This happens in the U.S. markets all the time, for instance, with Treasury yields sometimes falling during periods when the Fed is hawkish.
This article was originally posted on FX Empire
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