The Australian dollar has been back and forth during most of the trading session on Wednesday as we continue to see the 0.74 as an area of resistance. By forming the shooting star that we have, it suggests that we are going to perhaps break down a bit back into the consolidation zone. The 0.73 level on the bottom of this consolidation zone should offer massive support.
On the other hand, if we break above the top of the shooting star, then it is likely that the market would go looking towards the 0.75 level above. The 50-day EMA sits right at that level, and the 200-day EMA is sitting just above there as well. Ultimately, this is a market that I think will eventually find a reason to break down, perhaps if for no other reason than the Chinese economy slowing down. Keep in mind that Australia is highly levered to China and, as the PMI numbers are starting to drift a bit lower recently, that suggests that perhaps China will continue to be a major point of focus.
In general, I believe that the Aussie also has to worry about lockdowns, because Australia is hell-bent on destroying its own economy. The markets will eventually reward Australia for its efforts, and as a result we will continue to see Australian dollar weakness. At this point, the market is likely to continue to go lower, perhaps reaching down to the 0.70 level underneath. That is a major support level that a lot of people will be paying close attention to, and I think it makes a nice target. If we were to somehow break down below that level, it would be catastrophic for the Aussie.
There is the possibility that we wlll turn around and break above the “death cross”, which would be very bullish, perhaps opening up a move towards the 0.7750 level. I do not necessarily see this happening, unless there is some type of major move in the bond market in the United States, something that so far has not been the reality. Ultimately, fading short-term rallies continues to be the best way to play this trade from what I can see, and I am looking for momentum to the downside but recognize that the next couple of days might be a little tough.
