Currently, the Aussie is working its way through a maze of retracement levels at 1.0265, 1.0281 and 1.0304. This type of setup typically creates a labored move, but once these levels are cleared, traders usually emerge to drive it higher.
If the Australian Dollar can overtake all the retracement levels, then traders should watch how the market reacts to a test of the downtrending Gann angle at 1.0320. This angle has guided the currency lower for 40 market days since it topped at 1.0720 on February 29. Since bottoming at 1.0150 on April 11 and moving sideways, prices have consolidated enough to indicate an impending breakout. This will take place when the downtrending Gann angle is taken out.
The move through this angle will not change the trend on the swing chart. This will occur when the swing top at 1.0380 is violated; however, it will indicate a possible shift in sentiment to the upside. Shorts are likely to cover on the move, attracting the attention of momentum buyers who should arrive to drive the market higher.
Support comes in today on an uptrending Gann angle at 1.0250. Although it will be confirmed on a trade through 1.0380, the new minor bottom at 1.0182 has the makings of a secondary higher bottom. This is typically formed by traders following a closing price reversal bottom like the one created at 1.0150. The first rally following a closing price reversal bottom is usually short-covering. The secondary higher bottom is typically new buying. Counter-trend traders don't mind buying since they have the reversal bottom to lean on.
Fundamentally, since reaching the bottom at 1.0150 on the heels of a bullish employment report and rallying to 1.0380, the Australian Dollar has traded softer as investors increased bets the nation's central bank will lower interest rates. Slowing inflation is the driving force behind that thought. However, stronger global equity markets overnight have increased demand for higher risk assets, underpinning the Australian Dollar. The real challenge for Aussie traders will occur on the test of the downtrending Gann angle. Continued strength in the equity indices should make it easier to breakout above this barrier.
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