AUD/USD Forecast: Australian Dollar Hits Brick Wall

Christopher Lewis

It would not surprise me at all to wake up one day to see this market taking off quite drastically in one direction or the other. 

The Australian dollar rallied rather significantly during the trading session on Tuesday to break above the 0.78 level, but then turned around to show signs of weakness. By doing so, we ended up forming a bit of a shooting star, which suggests that the market still has no idea what to do with the 0.78 handle. At this point, I think this is going to continue to be a very difficult market to deal with, due to the fact that we had formed a shooting star that was preceded by a massive hammer. The market is essentially trying to figure out what the long-term move is going to be, and I think there are some signals that we need to pay close attention to.

To the downside, you can make a significant argument for the market breaking down due to the fact that we ended up forming a massive shooting star for the February candlestick, followed by another shooting star for the month of March. Because of this, it is important to pay attention to the overall downtrend that could be forming, but there seems to be a major hesitancy underneath to break out. The 0.76 level underneath is massive support that extends down to the 0.75 handle. If we were to break down below the 0.75 handle, it could open up a major move to the downside, perhaps as low as 0.70.

To the upside, if we can break above the 0.7850 level, it opens up the possibility of another attempt on the 0.80 level, which extends all the way to the 0.81 handle. Above there, the market then is likely to be more of a “buy-and-hold” type of situation. I do think that there are plenty of people that expect this, but the reality is that the reopening trade may or may not be going as easily as people thought. Nonetheless, this is a market that I think continues to see noisy behavior going forward, so I would be very cautious about my position size. In the short term, this looks a lot like a market that is going to go back and forth, but it would not surprise me at all to wake up one day to see this market taking off quite drastically in one direction or the other. Confusion reigns.

AUD/USD

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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