AUDUSD Forecast – Firm Trade but Gains Limited by Fed’s Hawkish Tone

The Australian Dollar is edging higher on Monday as traders continue to defend against a change in trend in front of the .6669 main bottom.

The Aussie was hit hard last week, dropping 1.63% for the week after the Fed revealed a more hawkish tone in its monetary policy statement, while earlier in the month the Reserve Bank of Australia (RBA) set a less-hawkish tone.

The news prompted long Australian Dollar traders to book profits and the rout was on. Traders also gobbled up oversold U.S. Dollars since the hawkish Fed made the greenback a more attractive asset. The U.S. Dollar was also helped by safe-haven buying as investors shed riskier assets like stocks.

At 06:00 GMT, the AUDUSD is trading .6707, up 0.0020 or +0.30%. On Friday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $66.34, up $0.01 or +0.01%.

This week’s price action could be a little choppy because of the upcoming Christmas holiday. We may see the highest volume of the week on Monday as the major players slowly move to the sidelines throughout the week.

While we don’t expect any major moves this week, we could see some bouts of volatility due to below-average volume.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through .6669 will change the main trend to down. A move through .6893 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum.

The major resistance is the long-term 50% level at .6706. The nearest support is a pair of 50% levels at .6639 and .6582. The major support is the long-term Fibonacci level at .6466.

Daily Swing Chart Technical Forecast

Trader reaction to .6700 is likely to determine the direction of the AUD/USD on Monday.

Bullish Scenario

A sustained move over .6700 will indicate the presence of buyers. Taking out .6736 will indicate the buying is getting stronger. This could trigger a surge into the major resistance at .6760. Look for sellers to come in on a test of this level.

Bearish Scenario

A sustained move under .6700 will signal the presence of sellers. Taking out .6675 will indicate the selling is getting stronger, while a trade through .6669 will change the main trend to down. This could lead to a quick test of the support cluster at .6641 – .6639. The latter is a potential trigger point for an acceleration to the downside.