By: Christopher Lewis
The Aussie gapped lower at the open for Monday as the world sold off risk assets in reaction to the election results in places like Greece, Germany, and France. The austerity packages are now in some kind of doubt, so this of course had the markets a bit jittery. This doesn’t surprise me as the Aussie is so highly correlated to the commodity markets and gold especially.
As Australia is the main supplier of raw materials to China, that country will have to be watched as well. However, over the last few months we have seen weaker than expected Chinese numbers, and this suggests that China is slowing down. Granted, it isn’t to suggest that the Chinese are suddenly going to implode, but a slowing in general will hurt Australia in a big way overall.
The 1.02 level has been broken down below over the last few sessions, but the area is trying to regain control for the bulls. The level has been one that I have figured to be important, and as a result I am watching this pair closely.
Bearish flag and 1.02 are still important
The charts show a bearish flag pattern that has broken down. The move below 1.02 also showed the market breaking through another support level, so for me this was a significant sign. The pair is going to continue to be highly sensitive to the risk attitude of the markets, and so far it seems that some participants are willing to look past a lot. However, I can’t help but think that it is only a matter of time before something bad in the form of a headline comes out of the EU. This will wreck risk appetite, which will hit this pair as well.
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The gap has been filled at this point, and the markets are closing just above the top of it to be honest. In general, this would be a bulli8sh sign, but as the candle is sitting just at 1.02, it is hard to call the “all clear” at this point. I am selling the Aussie, but only if we can drop to about 1.0150 or so.