The Australian Dollar plummeted on Friday, closing at a multi-month low, and in a position to take out the October 2, 2019 main bottom at .6671. The catalysts behind the selling pressure were fears of an increase in the contagion of the coronavirus, a weaker outlook for China’s economy and disappointing domestic data.
Last week, the AUD/USD settled at .6687, down 0.0036 or -0.53%.
On Friday, the markets grew more concerned about the economic damage of the new coronavirus that has spread from China to around 20 countries, killing more than 200 people. Disruptions in supply chains and travel curbs are expected to weigh on China’s economy, prompting economists to temper their growth expectations for the world’s second-largest economy.
Since Australia is often viewed as a proxy for the Chinese economy, its economy is also expected to take a hit. The price behavior suggests investors may be increasing bets the Reserve Bank of Australia (RBA) may have to make an earlier than expected rate cut to prevent a recession.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. Taking out Friday’s low at .6683 will signal a resumption of the downtrend. The next target is the October 2, 2019 main bottom at .6671.
The nearest main top is .6934. Taking out this top will change the main trend to up. This is highly unlikely however. Due to the prolonged move down in terms of price and time, aggressive counter-trend traders shouldn’t be trying to pick a bottom. Instead they should be watching for a closing price reversal bottom.
The formation of a closing price reversal bottom won’t indicate a change in trend, but it could lead to an impressive counter-trend rally.
The minor trend is also down. The minor trend will change to up on a trade through .6777. If this occurs, momentum will shift to the upside.
Daily Swing Chart Technical Forecast
Given the downside momentum into Friday’s close, we strongly anticipate a lower opening on Monday. Sellers are likely to go after the October 2, 2019 main bottom at .6671.
Don’t be surprised by an acceleration to the downside on a break through .6671. There is no major support until the March 3, 2009 main bottom at .6285.
We’re expecting a steep break because the coronavirus is spreading and economic conditions are worsening. Furthermore, we’re anticipating a lot of selling pressure once China’s stock market opens on February 3 after being closed for more than a week.