- The AUD/USD has rallied rather significantly on Friday to break much higher.
- The market has found quite a bit of selling pressure right around the 0.69 level, which had been previous support.
- The “market memory” in this area makes quite a bit of sense, and therefore it’s likely that we will see more of a “fade the rally” type of situation.
- The 50-Day EMA is sitting right around the same area as well, so it all lines up quite nicely.
The Australian dollar is highly sensitive to risk appetite, so that of course makes quite a bit of sense. The risk appetite around the world is miserable at best, although during the trading session on Friday we did see quite a bit of selling of the greenback. This is temporary, and therefore it’s likely that we will eventually see plenty of selling pressure at the first signs of trouble, which could come from mainland China, or it could be from the commodity markets themselves.
If we do break above the 50-Day EMA, we are not out of the woods yet. The 0.70 level would also offer significant resistance, and it’s not until we break above the 200-Day EMA that I would get bullish on this pair. Furthermore, I would need to see US dollar weakness across the board, because I don’t trust shorting the US dollar. At this point, the Federal Reserve continues to be extraordinarily tight with its monetary policy, and of course, a global recession seems to be all but inevitable at this point.
Look for Opportunities to Short the Aussie
Speaking of that global recession, it will drive down demand for commodities, and that will cripple the Australian economy to a point. The market will be very noisy, but if you drill down to shorter time frames, you may get the opportunity to shorten in exhaustion candle and take advantage of the longer-term trend.
If we were to break down below the 0.67 level, then it would be a major breakdown of support, and the Australian dollar could find itself going down to the 0.65 level. After that, who knows where we go, because it’s been so long since we have broken down that far. Rick scratch that regardless, I don’t have any interest in buying the Aussie, at least not if there is going to be strength in the greenback.
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