Technicals show room for more dollar weakness after shutdown

The U.S. dollar is sharply down across the board after the U.S. government shutdown. Some would think that U.S. stocks futures will turn lower, but we in fact can see higher prices since the news came out. However, we may see a risk aversion (lower stocks) if the government will be shuttered for too long, let’s say around 3 weeks. In the past, the longest close was 21 days back in 1995. The longer the shutdown lasts, the more nervous investors will become.

From a technical point of view, we see room for more dollar weakness as long as the market trades beneath 80.75. Meanwhile, of course, we expect higher majors, such as EUR, GBP, CHF and even AUD, which is also bullish and supported fundamentally after RBA kept rates unchanged at 2.5%.

USD Index daily

On the AUD/USD chart, we can see the pair found a support around the 0.9220-0.9300 area, at former wave four from where we have seen a nice bullish reversal with a decisive break through the upper trend-line of a corrective channel (circled zone). This break indicates an uptrend continuation for AUD/USD that is now pointing back toward 0.9528. Force index is also reversing higher now suggesting that volume and momentum are coming back into the market.

AUD/USD 4hElliott Wave Analysis Chart

In fact, notice that latest decline on AUD/USD was in three legs, labeled as A-B-C. This is a structure of a contra-trend price action, called a zigzag. When zigzag is complete, the pull-back will normally be fully retraced.

With that said, we expect more upside on AUD/USD.

About the Author

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/

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