The Australian dollar initially pulled back just a touch on Wednesday but then shot higher to show signs that it may go looking towards the 0.73 level. The 0.73 level is an area where we had seen previous support. This is an area where I suspect that we will see a lot of pressure, and as we head into the meeting it makes sense that the short covering may be over. Now we are waiting to see whether or not the Federal Reserve is going to taper or not, as the central bank has been all over the place as far as its members are concerned.
That being said, I anticipate that any rally at this point will probably be sold into at the first signs of exhaustion, but I can also say the same thing about the market breaking down below the bottom of the candlestick for the trading session on Wednesday, that it offers a sell signal also. This is a market that I think has gotten a bit oversold, and now is rapidly approaching overbought. This is the type of volatility that I think we are going to continue to see, so you need to be cautious about your position size until the trade starts to work out. At that point, I think you will probably become quite a bit more aggressive.
As far as buying is concerned, I need to see this market recapture the 0.74 level before I am convinced of a complete turnaround. When you look at the longer-term chart, the 0.70 level underneath should have been a bit of a target, as it was massive support previously. I think that we will still have to test that area, unless the Federal Reserve explicitly states at Jackson Hole that they are not going to taper anytime soon. If they do, then it is possible that all bets are off. However, the Australian dollar is also tied to global growth, which is all over the place as well. I do believe that we have gotten a bit overdone in both directions, and now we will have to wait and see what the next signal is, but right now I believe that the area above is likely to cause problems.
