- The AUD/USD initially tried to rally a bit during the trading session on Monday but gave back gain as it looks like we are continuing to roll over.
- Ultimately, I think this is a situation where you probably see a breakdown, as we have been grinding away in a bit of a channel.
- If we break down below the 50-Day EMA, it’s likely that the Aussie dollar will then struggle and start selling off again, perhaps reaching down to the 0.66 level.
In the meantime, rallies I think to offer selling opportunities because quite frankly the candlestick that formed on Thursday is the time for a candlestick that is almost never formed in a vacuum. There should be some follow-through, and I think we are trying to see that on Friday, to begin with. The market will continue to be very noisy, but at the end of the day, the Australian dollar is highly levered to China and of course global growth in general. After all, the Austrian commodity is highly levered to the commodity markets, so as economic growth rises and falls, so will the demand for Australian exports.
The Market Continues to be Erratic
As far as buying is concerned, I would need to see the Thursday candlestick taken out to the outside to begin to feel comfortable doing so. Quite frankly, we are obviously on the precipice of something happening, now the question of course will be what happens next? The market rallied to the top of the channel is still a viable possibility, but the Friday candlestick certainly suggests that we are going to have more of a grind to the downside. The market continues to be very erratic, with the US dollar being attractive due to the fact that it is a safety asset.
The fact that the Thursday candlestick wiped out something like 6 days’ worth of trading should tell you most of what you need to know. The fact that the recovery was so weak on Friday also should tell you even more. I do think that we get an opportunity to get short again given enough time, but I believe they a little bit of a reality check has slapped the market, therefore I think it’s also worth noting that we are between the 50-Day EMA underneath and the 200-Day EMA above. Typically, when we are stuck between those 2 moving averages, we are about to make a bigger move.
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