The Australian dollar rallied initially on Friday to break above the 200-day EMA, but in the end only turned around to show signs of hesitation. The 200-day EMA is obviously an area that a lot of people will be paying attention to, so a pullback from there is probably not a huge surprise. That being said, the candlestick is a shooting star, so that is a negative formation. However, we have seen that earlier this week, only to turn around and rally right through it.
At this point, I suspect that what we are seeing is a setup for continued bullish pressure for the Australian dollar longer term, but there are a lot of things to work through in the meantime. At the very least, we need to pay close attention to the fact that the market is overdone. A pullback to the 50-day EMA is very feasible, and I would be perfectly comfortable with that move. If we break down below the 50-day EMA, then it may change a few things, as we would probably go looking to break below the 0.73 handle at that point. Breaking down below the 0.73 handle would change some things, perhaps sending the market down to test the lows again.
On the other hand, if we break above the top of the shooting star from the trading session on Friday, then it opens up an attempt to get to the 0.75 handle. That would also form a massive “W pattern” that could allow this market to really take off to the upside. One thing is for sure: the US dollar does look as if it is in a little bit of trouble at the moment, so I anticipate that we should probably see it show the same attitude over here, but Australia has some very unique issues.
The Forex markets are trying to pick and choose winners and losers, instead of just trading the US dollar homogenously like you typically will do. For example, the Australian dollar and the euro both seem to be lagging a bit, especially when you compare them to the New Zealand dollar and the British pound. In other words, the overall correlations may not be holding up in the short term.
