The Australian dollar fluctuated during the trading session on Wednesday to hover right around the 0.75 handle. That being said, the market had initially reached towards the lows again, but after the FOMC Meeting Minutes, the market had rallied again as traders read that the Federal Reserve was trying to buy time before tightening monetary policy. However, it was not the type of turnaround that is indicative of a bigger move. In other words, there is still plenty of bearish pressure just above, and if we can break down below the most recent low, it could open up the “trapdoor” to much lower levels.
With that being said, it is also worth noting that the US dollar has been strengthening for a while, and we will need to pay close attention to the bond market in the United States, because if those yields continue to drop, it might be a sign that people are buying more bonds, and you should in theory see more demand for US dollars. That is not to say that it will be easy, but it certainly looks as if we are doing everything we can to chip away at support underneath.
Obviously, there is also the exact opposite scenario, where we start to see buyers jump in and push this market to the upside. I think at the very least you need to see the markets break above the top of the candlestick from the Tuesday session to show serious follow-through, and perhaps even better yet, we want to see the market take out the shooting stars from the previous week. In other words, although there is a scenario where you can see markets rally and there are definite areas to pay close attention to, the reality is that we still have a lot of work to get there. At this point, it looks like the markets are ready to break down given enough time, and all we would need is some type of “push” in order to break down rather significantly. If and when it does happen, I suspect that we could go looking closer to the 0.70 level over the longer term. Even though that sounds like a major sell off, the reality is that when you look at the longer-term trend, it still pales in comparison to what we had seen over the last year and ½ or so.
