The Australian dollar fell hard during the trading session early on Monday, only to turn around and form a bit of a hammer. Ultimately though, we also gave up some of the late gains, so at this point I think we are still very confused and likely to see a lot of noise in general. The 0.74 level above is psychological resistance, just as it was previous support. Because of this, I do believe that this market may run into some type of selling pressure in that general vicinity, extending all the way to the 0.75 level.
Speaking of the 0.75 level, it is worth noting that we are getting ready to form the so-called “death cross” just above it, and as a result I think this is a pair that is going to continue to struggle a bit. The Federal Reserve has its say this week, but I think it is only a matter of time before this pair breaks down to the typical correlations that we will see. In other words, the risk appetite of traders around the world will show up in this pair. What I would pay the most attention to is the fact that we have been drifting lower for some time now, so a little bit of a bounce might be an opportunity to start shorting again, as signs of exhaustion will almost certainly attract a lot of attention. I do not like the idea of buying this pair until we break well above the 0.75 level on a daily close, perhaps even a break of the 0.76 level.
To the downside, I think that the market could go as low as the 0.70 level, which is a large, round, psychologically important figure, and an area where a lot of people will be paying close attention due to the psychology of that level and the fact that it was important so many times in the past. Breaking down below that would be catastrophic, but I think at the very least we are probably still going to stay in a “fade the rallies” type of marketplace. This will be especially true if the Chinese economy and stock markets continue to show signs of weakness, to which the Australian dollar is highly correlated.
