The AUD/USD finished higher on Friday after recovering from early session weakness. The early weakness was generated by follow-through selling related to Thursday’s dramatic and potentially bearish closing price reversal top.
On Thursday, the Aussie posted a higher-high, lower-close chart pattern after Goldman Sachs Asset Management attempted to call the top of the Australian Dollar rally. It strongly recommended selling and shorting the currency after it jumped to a two-year high on what the firm sees as unrealistically strong expectations for interest-rate hikes by the central bank.
“For small open economies like Australia, where a strong currency is actually a big growth headwind, currency strengthening makes the prospect of any monetary-policy response quite remote,” Philip Moffitt, the firm’s Asia-Pacific head of fixed income said. “We’d be looking to take advantage of that.”
Even with Goldman Sachs issuing the sell signal, the AUD/USD recovered on Friday due to a combination of underwhelming U.S. economic data and political uncertainty.
The U.S. Dollar weakened due to a smaller-than-expected increase in U.S. labor costs as well as a report that showed U.S. gross domestic product growth picked up to 2.6 percent in the second quarter, matching the forecast. Additionally, growth in the first quarter was revised downward to 1.2 percent.
In other news, the U.S. Senate’s failure to pass a repeal of the 2010 Affordable Care Act early Friday also weighed on the Greenback.
Technically, the main trend is up according to the daily swing chart. However, Thursday’s closing price reversal top has led to a shift in momentum to the downside.
A trade through .8065 will negate the reversal top and signal a resumption of the uptrend. This could generate the upside momentum needed to challenge the next targets at .8162 and .8165. The first target is the May 4, 2015 main top and the second is a major 50% level.
If Goldman’s proclamation gains legs then we could see the start of a sell-off. However, the selling is going to be labored because of a series of retracement levels that could provide support at .7969, .7947, .7925 and .7893.
The actual acceleration to the downside could begin with a break under the main bottom at .7874.
This article was originally posted on FX Empire