June Australian Dollar Showing Signs Of Bottoming

The June Australian Dollar futures contract is showing signs of bottoming this morning after regaining a key retracement level and crossing to the bullish side of a steep downtrending Gann angle from the April 27 top at 1.0422.

The main range the currency appears to be adhering to is the November 23 bottom at .9496 to the February 29 top at 1.0720. This range has created a retracement zone at 1.0108 to .9964. Value traders often begin to surface inside of the 50% to 61.8% retracement zone when the trend is up, but this time, they may be attracted to it because of oversold conditions. In addition, since the market has been down 12 days from the 1.0422 top, it may have just run out of sellers.

Overnight the June Australian Dollar reached a low of .9910. The subsequent intraday short-covering rally has put the market in a position to post a daily closing price reversal bottom if it can stay positive into the close. This pattern is not indicating a change in trend, but is a sign that the buying may be greater than the selling at current price levels.

Besides the testing of the Fibonacci level at .9964 and the formation of a possible closing price reversal bottom, the June Australian Dollar has also passed to the bullish side of a downtrending Gann angle at .9942. A close over this angle will be a sign that the market is setting up for a strong retracement of the most recent break. Given the short-term range of 1.0422 to .9910, we could be looking at a near-term retracement to 1.0166 before the downtrend resumes.

If this currency is going to retracement to 1.0166 then the fundamentals are going to have to change dramatically. European sovereign debt fears and a general dislike for higher –yielding assets are just two reasons why the Aussie should remain under pressure. Additionally, the recent 50 basis point slash of its benchmark interest rate by the Reserve Bank of Australia is the move which started the decline and the main reason why this currency is likely to remain under pressure.