The Australian dollar rallied a bit on Monday, but still has failed to break above the 0.73 level. The 0.73 level is an area where we have the 50-day EMA and have seen quite a bit of resistance previously. Because of this, I think it is probably only a matter of time before we start selling off again, as this area has been so reliable. However, if we were to break above this level then we have to start looking at the possibility of a different type of market.
Looking at this chart, I think what we continue to see here is downward pressure based upon the 50-day EMA and the previous consolidation that had been between the 0.73 level and the 0.74 level. In other words, I think there is plenty of noise above that is going to cause major problems. At this point, I am waiting for signs of exhaustion to start fading again, to pick up the US dollar “on the cheap.” After all, Australia is highly levered to China, and that of course is not necessarily the place you want to be at the moment.
As long as China struggles, Australia will as well. Commodities have been rather bullish, but at this point it is likely that we will see a bit of a disruption as to which commodities are going to be bullish. The most bullish markets have been energy, and I think that will continue to be the case going forward. It is interesting that copper is not necessarily taking off straight up in the air as well, so that is perhaps a little bit of a “heads up” as to where the Aussie and the Australian economy could go. The Australian government continues to lock down in various bits and pieces of the economy, which does no favors as well.
If interest rates in the United States start to pick up again, that also makes the US dollar much more attractive, and with that being the case, the market will favor the greenback as well. In other words, it is probably only a matter of time before the sellers return. If we break down below the bounce that we just had over the last couple of days, it opens up a potential move to the 0.71 handle, possibly down to the 0.70 level after that.
