The Australian dollar initially pulled back during the trading session on Wednesday but then turned around to show signs of strength again. The market looks as if it is trying to get to the 0.80 level, a level that will attract a certain amount of attention not only due to the fact that it is a round figure, but it is also an area where we have seen major shifts in the Australian dollar over the longer term.
The candlestick was somewhat bullish for the session, but at this point I think that we are getting just a bit extended. The market pulling back should entice more buyers to come back into the market based upon the fact that the Australian dollar is highly sensitive to the “reflation trade.” The market will probably struggle with the 0.80 level, but whether or not we can break above there is a completely different question. If we can clear that level, and I mean substantially, we could send the Australian dollar much higher over the longer term. In fact, I think it opens up the possibility of a move to the 0.90 level over the longer term. This assumes that we get massive stimulus out of the United States and massive demand for commodities.
There should be a huge “boom” as soon as the economies around the world open, but I wonder how long it will take for the underlying issues to reappear. Nonetheless, I do think that pullbacks will be bought into in the short term, and I have no interest whatsoever in shorting this market. The 50-day EMA is currently at the 0.7677 handle and racing towards the 0.78 level where we broke out of recently. This is why I like the 0.78 level on a pullback, because I think the market will probably try to build up enough pressure to finally clear the 0.80 level, which would take quite a bit of effort.
Having said that, the 0.75 level underneath could be a trigger for more selling if we break down below it. At that point in time, I would anticipate a move to the 200-day EMA initially, and then possibly the 0.70 level after that. In the meantime, I remain bullish overall.
