AUD/USD Rally Stalls At Key Retracement Zone

After piercing the upper boundary of a key retracement zone, the AUD/USD stalled short of downtrending Gann angle resistance. Although the currency pair did finish higher for the week, it did open lower Sunday night, falling back inside of the retracement zone.

Since bottoming in early June at .9580, the Aussie has gone on a tear, reaching a high of 1.0444 last week. Despite the seven week rally of .0864, the main trend remains down since no main top was crossed in the process. Since it is stalling at a retracement zone, the rally should be categorized as a correction.

Based on the main range of 1.0856 to .9580, a key retracement zone has been identified as 1.0220 to 1.0369. Additionally, downtrending Gann angle resistance comes in this week at 1.0436. The important Gann angle to watch today is the uptrending Gann angle at 1.0220. This price is also the 50% level, making it a very important support point. A break through this price could lead to an acceleration to the downside.


The seven week surge in the Australian dollar has been led by investors looking for fresh stimulus from China’s central bank and the U.S. Federal Reserve. Last week’s selling pressure, however, was triggered by investors slashing positions in higher-yielding assets amid fresh news from Europe regarding the banking and sovereign debt crisis in Spain.

This week, Aussie dollar traders face a crucial inflation report that will set the tone for further action by the Reserve Bank of Australia when it meets in August. A steady drop in commodity prices and a general slowdown in the economy are leading experts to call for a weak core inflation number. This should give the RBA room to cut interest rates next month if it wants. Since inflation is not posing a threat to the economy, economists are mixed as to whether one will take place or not. This indecision could lead to a choppy, two-sided trade in the Aussie dollar in the upcoming weeks ahead of the meeting.

Since the RBA has already slashed rates 75 basis points in May and June, many traders feel that the central bank may be content with holding its benchmark interest rate at 3.50 per cent. Traders will be looking for clues from RBA Governor Glenn Stevens tomorrow when he gives a speech on the economy’s outlook.

The almost two-month rally hasn’t gone unnoticed by traders who feel the rally may have been overdone. Some feel that the currency was driven higher by investors seeking the highest yield. Last week’s stall and subsequent sell off has led some to believe that the Aussie is due for a sizable correction especially if European jitters continue to encourage investors to shed higher risk assets.