The Australian dollar fell again on Wednesday to reach below the 0.73 level. This is an area that will attract a certain amount of attention, but more importantly, we have a significant uptrend line underneath. The question now is whether or not we will see some type of value hunting in this region? If we do break down below the uptrend line, then it opens up a flood of fresh selling, opening up the possibility of reaching down towards the 0.7150 level.
Keep in mind that the Australian dollar has a high correlation to China as well, and the Chinese situation seems to be dire at times. The Reserve Bank of Australia has decided that it is going to remain dovish, while the Federal Reserve continues to see reasons to taper the bond purchases, thereby tightening monetary policy. With this, it continues to shift the dynamic towards a divergence between these two banks, meaning that the US dollar should continue to see plenty of reasons to go higher. With this being the case, I would look at short-term rallies that show signs of exhaustion as an opportunity to get short again. The 50-day EMA above would be massive resistance, which also is backed up by the “tweezer top” that we had formed over the previous couple of sessions. With that, I like the idea of looking at this through the prism of “can we get above there or not?”
Looking at this chart, the market will continue to be very noisy, but it certainly looks as if we are trying to continue the major downtrend, which could continue to see this market reached towards the crucial 0.70 level underneath. This comes down to the US dollar more than anything else, so I think given enough time we are likely to see this market really make a huge flush lower if we get a sudden “risk off” type of attitude. To the upside, if we were to take above the 200-day EMA, then it is possible that we could go looking towards the 0.75 handle above, which is the beginning of significant resistance longer-term that extends to the 0.76 at all. Clearing that than would make the see a “buy-and-hold” currency.
