The Australian dollar broke down significantly during the trading session on Monday, slicing through the 0.74 level like it was not even there. Because of this, the market is very likely to continue to go much lower, and as I write this article, the Australian dollar is getting relatively close to the 0.73 handle. Sure, after a deal like this you will quite often see a little bit of a bounce, but that bounce almost always gets sold into, as this is a very decisive candlestick.
I have been saying for a while that I thought the Australian dollar could go down to the 0.70 level, and there is nothing on this chart now that suggests otherwise. With this being the case, I think that short-term rallies will be sold into, extending all the way to at least the 0.75 handle. The 0.75 handle also has the 200-day EMA above, with the 50-day EMA reaching lower, which signifies the “death cross.” The “death cross” is a very negative turn of events and a longer-term selling signal. By the time you normally get the signal you have already missed quite a bit of the move. As soon as we broke down below the 0.75 handle, there was a very negative tone to this market suddenly, and it certainly looks as if the US dollar itself is going to continue to pick up a lot of momentum.
The Australian dollar is suffering at the hands of a bit of a trade spat between Australia and China, which does nothing to help the situation. Furthermore, Chinese PMI numbers and GDP numbers both have disappointed recently, which suggests that we are going to see accelerated global selling in risk assets, opening up the possibility of the Aussie itself being sold. Beyond all of that, the Australian government is hell-bent on destroying its own economy with lockdowns, so it looks as if the market is going to give the Australian government what it wants: a discounted economy. At this point, I continue to short this market every time we see signs of exhaustion after a bounce. I have been short of this market for a while and have been adding along the way. I wil continue to do so until I see some type of major change in the attitude.
