- The AUD/USD shot higher during the trading session on Wednesday, but it continues to struggle in general.
- Ultimately, I think we are looking at a market that is starting to run out of momentum, if we break down below the 50-Day EMA underneath, it’s likely that we will really start to see downward momentum.
- I don’t like the Aussie right now, as it is highly levered to the commodity markets globally.
With a global slowdown almost certainly on the horizon, it’s difficult to imagine a scenario where you should be piling a bunch of money into copper, iron, aluminum, and other hard assets that the Australian economy is so highly levered to. Furthermore, you have the Chinese seeing infection rates of 37 million a day, and that means Australia’s largest partner won’t necessarily be looking to buy a lot of things either. In other words, the Australian economy is about to take a punch in the face.
Liquidity Issues Ahead
One of the main reasons we’ve seen the US dollar loses some strength is that people recognize that the Federal Reserve is much closer to the end of the cycle than it used to be. However, that does not mean that they are suddenly going to pivot like Wall Street seems to want to believe. In fact, it’s very likely that we will see higher interest rates for longer, meaning that the US dollar will probably continue to be somewhat resilient going forward. Furthermore, the 200-Day EMA sits just above the 0.68 level, an area that we could not break above during the session on Wednesday. This tells me that there is an extreme amount of resistance in that region, and therefore it’s time to start selling again if we get there.
On the other hand, if we were to turn around and break above the 0.69 level, then it’s likely that we could see a bigger boat, perhaps to the 0.70 level. That is a large, round, psychologically significant number that will attract a lot of attention, so don’t be surprised at all to see the market react to it. However, it’s going to take a Herculean effort to get to that level anytime soon, especially as liquidity will be an issue between now and the New Year’s Day celebrations.
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