The market will be noisy, but I still think the downside is the best way to go.
The Australian dollar rallied a bit on Friday as the 0.73 level continues to be important. That is an area that is at the bottom of the previous consolidation range, so it makes sense that we failed to continue going higher from that point. The area has been important more than once, and it should not be a surprise that the candlestick ended up being printed the way it has. In fact, we have ended up forming a bit of an inverted hammer, which is a very negative sign.
Closing at the bottom of the range is almost certainly a sign that we are going to continue to see weakness. Ultimately, this is a market that has been drifting lower for a while, and all of the noise and trouble in China certainly is not helping the situation. With that in mind, I think that fading short-term rallies will continue to be the way going forward, as the Australian dollar is so highly levered to risk appetite as well. In addition, the Australian government has continued to lock down its economy.
That being said, if we were to turn around and take out the 0.74 level on a daily close, the Australian dollar could start to rally again. However, I just do not see that on the charts, and it is more likely that we will go looking towards the 0.71 level then see a major breakout. The 0.71 handle is a major area where we have bounced from, and if we break down below there it is likely that we will go looking towards the 0.70 level which is a large, round, psychologically significant figure.
I do think that closing at the bottom of the candlestick certainly suggests that there is further to go, as fear starts to pick up around the world when it comes to the global supply chain and whether or not we are going to continue see economic activity continue to pick up. The market will be noisy, but I still think the downside is the best way to go.