AUD/USD Forecast: Australian Dollar Looking Stronger

Christopher Lewis

When you look at the longer-term trend, you can see that we have been rallying forever it seems, and now we may simply be trying to digest those longer-term gains.

The Australian dollar had a bullish session on Friday, but on Monday we saw an extension of that move. This suggests that perhaps the Australian dollar is going to look at that 50-day EMA underneath as a potential support level. We have bounced quite nicely from it, so it does make sense that we would see a bit of continuation. The Australian dollar is a play on the reflation trade, which we are still very much being inundated with by the financial media.

At this point, it looks like we could go back towards the highs at the 0.78 level, but it is obviously going to be very noisy between here and there. Underneath, even if we did break down below the 50-day EMA, I think there is plenty of support down to the 0.75 handle, so I would not be a seller at this point. We are starting to see a lot of questions asked about the reflation trade and whether or not the economy worldwide is going to turn around and take out to the upside now that the vaccine is here, mainly due to the fact that the vaccine is struggling to be distributed in some regions.

The Australian dollar is a play on commodities, and commodities certainly look to be very bullish in general. As long as that is going to be the case, then the Aussie will be one of the first places that currency traders express their opinion when risk appetite returns. If we can break above that 0.78 level, the Australian dollar will more than likely go looking towards the 0.80 level after that, which is a huge inflection point for longer-term trading. In fact, it would kick off a whole new leg higher. On the other hand, if we were to break down below the 0.75 level, I think that could have major ramifications for the Australian dollar. Nonetheless, when you look at the longer-term trend, you can see that we have been rallying forever it seems, and now we may simply be trying to digest those longer-term gains. The candlestick for the trading session on Monday confirms the bullishness of the Friday candlestick, so I do like the look at this chart for longs. I do not necessarily think that is going to be easy to get back to the recent highs, but clearly that is what the buyers are trying to do.

AUD/USD chart

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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