The Australian dollar fell a bit during the trading session on Friday as we continue to see the US dollar strengthened overall. The 0.75 handle is a large, round, psychologically significant figure that a lot of people will be paying attention to. We have broken down below the 200-day EMA, which is a negative sign as well. That being said, it will be interesting to see how this plays out, as we are at the bottom of the overall trading range and also at the lows of the year.
If the Australian dollar breaks down below the lows of the Friday session, this could begin a massive flush lower, as the market goes looking towards the 0.74 handle immediately, and then possibly as low as the 0.70 level over the longer term. A lot of this is going to come down to whether or not traders still believe that the Federal Reserve tightening is going to be an imminent threat, or whether or not we are just going to turn around and continue to bounce around in the longer-term consolidation area.
If we were to turn around and break above the 200-day EMA, then it is possible that we would turn around and rally towards the 50-day EMA. Having said that, this is a very negative turn of events and clearly the sellers are in control at the moment. Because of this, I would be very cautious about my position size to the upside, but I also recognize that to the downside it would probably be an extraordinarily hard flush, so you might be a little bit more aggressive in that direction. If I were to be a buyer, I would probably add slowly on the way up in order to build the position.
Monday is going to be a crucial session. Nonetheless, buyers certainly would have a lot to prove, and I think the easiest route could be to the downside. Pay close attention to the US dollar overall because it will obviously follow the same directionality in this pair as it will in all of the others, as this is almost certainly a solely US dollar move.
