The Australian dollar has pulled back a bit during the trading session on Thursday, as the 0.75 level has offered a bit of resistance. That being said, the market has been very bullish for a while and a pullback is probably not completely out of sorts, as we need to build up a certain amount of momentum to continue going higher. I believe that the 0.74 level underneath should be supportive, especially as we have the 200 day EMA between here and there coming into the picture. The 200 day EMA of course attracts a lot of attention, so I think that longer-term technical traders will look at this as a potential opportunity.
Pay close attention to the US dollar in general because this is probably more about the greenback than the Aussie dollar. Quite frankly, the Australian dollar has been a bit of an underperform her against the greenback in relation to other currencies, but it is also worth noting that could be partly due to the issues in China. The Australian economy is highly levered to the Chinese economy, as the Australians are major exporters of hard materials such as copper and iron towards the Chinese mainland. As long as there are problems there, it could be a bit of a weight around the neck of the Aussie, but at the end of the day, the US dollar is being sold off against almost everything, so therefore the Australian dollar may have a little bit of “catching up to do”, at least if that continues to be the case.
Breaking above the top of the candlestick for the trading session on Thursday would be a very bullish sign, and more than likely would send the Aussie much higher. When you look at the “W pattern” that I have drawn on the chart, it measures for a move to the 0.78 level, an area that has been important previously. It all ties together quite nicely, but at this point in time you still have to be somewhat cautious. Pullbacks should be buying opportunities as long as we can stay above the 0.74 level, which is an area that I think would attract a lot of attention. Expect choppiness, but look for value if the market does show signs of support or better yet some type of bounce after that support.
