The Australian dollar continued to fall as we reached towards the 0.6850 level below, an area that has offered support more than once. That being the case, the market looks as if it is one that we should be selling, at least until we get the announcement coming out of the Federal Reserve. Remember, it’s not a question as to whether or not the Federal Reserve will cut interest rates but rather whether they will continue to cut interest rates after that. I believe that is the case, so it’s only a matter time before this market turns around.
That being said, it’s obvious that the Australian dollar itself has plenty of problems. The Australian dollar is unfortunately tied to the Chinese situation and that of course is continuing to be an issue between the mainland and the United States, and there doesn’t seem to be any end in sight. That doesn’t mean that we won’t get some type of resolution in the end, and I think it’s only a matter of time. In the short term we have to focus on what we do know is coming and that of course is going to be the Federal Reserve interest rate announcement.
If for some reason the Federal Reserve decides not to cut rates, that will send the Australian dollar tanking, perhaps reaching down to the 0.68 level immediately. A break down below there is a huge “flush” in the market, as it would be a major breach of support. However, it’s more likely that we not only get a cut but also get the Federal Reserve sounding as dovish as humanly possible. If that’s going to be the case, then it’s likely that we will go looking towards the 0.69 handle, the 0.6950 level, and then eventually the 0.70 level above. Obviously, you don’t want to put too much risk on ahead of the announcement but more than likely traders will find a reason to be bullish about life in general, so therefore that should mean that we recover from this oversold condition. That doesn’t mean we change trends quite yet, but I do think that happens given enough time, and that should send this market above that trend line that I have marked on the chart. In the short term though, expect more volatility with more of a proclivity to the upside after the announcement.