The Australian dollar has tried to rally into the 200 day EMA but gave back those gains to show signs of weakness. The Reserve Bank of Australia has declined to increase tapering, so perhaps this was part of the problem. Nonetheless, this was a day where the US dollar strength across-the-board, so the Australian dollar falling should not be that big of a surprise. Furthermore, the 200 day EMA of course is an indicator that a lot of technical traders follow, so again it is not a huge surprise to see selling from that level again.
All of that being said, we are still sitting on top of the 50 day EMA, and we also are sitting on top of a major consolidation area. It is really not until we break down below the 0.73 level that uncomfortable shorting, and at that point in time I would not only be comfortable shorting, but I would be aggressively short of this pair. I think the next couple of days could be very noisy and difficult, so please keep that in mind as you trade. Your position sizing will be paramount, as we continue to see a lot of confusion.
To the upside, if we can clear the 0.75 level after clearing the 200 day EMA, I think at that point then you start to see a longer-term uptrend continue, going much higher to reach towards the highs and then eventually the 0.80 level. On the other hand, the down move could be as low as 0.71 without batting an eye. I think the Australian dollar will continue to be very sensitive to not only commodities, but the fact that the Chinese economy seems to be suffering as well. Remember, China is by far the biggest trading partner of Australia so that has a lot to say about what is going on as well. With major debt issues in China when it comes to the bond markets incorporate paper, that could be something on the periphery that is worth watching. In other words, expect a lot of noisy trading but eventually we will get an impulsive candlestick that we can follow. I think the next couple of days are probably going to be very difficult. With that in mind, be very cautious and only add to a position to build up to a bigger one after the market has proven your thesis correct.
