The Australian dollar rallied significantly on Wednesday again, breaking above the psychologically and structurally important 0.75 handle. By doing so, it certainly looks as if the market is ready to continue going higher as we have formed a massive “W pattern.” Staying above the 0.75 level would be a significant victory for the Australian dollar, as this is an area that will attract a lot of attention. Regardless, the market sits above the 200-day EMA, so I think buyers will come back into the market.
If we can break above the highs of the trading session on Wednesday, then it is likely that we will go looking towards the 0.76 level, but it is also worth noting that the market is going to be very sensitive to the overall China situation, which of course has a major influence on what happens with the Australian dollar. Nonetheless, it certainly looks as if we are trying to break out to the upside and structure certainly has changed. We have made a “higher low”, and now have made a “higher high.” In other words, it is the very essence of an uptrend.
Based upon the overall attitude of the markets, I think that we will continue to see more of a “risk on” type of attitude, and that favors commodity currencies such as the Aussie, Canadian dollar, and New Zealand dollar. They all tend to move in the same general direction, but at this point I think this is a market that could go as high as 0.78 based upon the measured move of the W. On the other hand, if we were to turn around and break down below the 0.74 level, then it is possible that we could go looking towards the 0.73 level. That is an area that is supported by the 50-day EMA, but it is very unlikely that we will get anywhere near there. The US dollar looks like it is getting beaten up pretty much and I think we are going to see it not only here but in multiple other markets. I suspect that there is going to be more of a “buy on the dips” attitude out there overall, so keep that in mind as we go forward.
