The Australian dollar initially sold off on Tuesday but turned around to show signs of life again later in the day. By doing so, it looks as if the panic that was seen in Europe has turned around. Quite frankly, the liquidity must be getting rather thin, because the moves are sudden and do not seem to last very long. With this being the case, the fact that we bounced should not be a huge surprise due to the fact that most people are waiting on the Federal Reserve and what it is going to do next.
The Australian dollar is highly sensitive to risk appetite and commodities, which have taken a bit of a beating in general as of late. That being said, the Aussie has plunged again, but we have found buyers later in the day as things stabilize. That being said, it certainly looks as if the US dollar could strengthen, especially if we start to see the Federal Reserve talk about accelerating its tapering. If it does, then it is very likely that the US dollar will strengthen even further.
The two-day meeting kicks off on Tuesday for the Federal Reserve, so all eyes will be on Jerome Powell Wednesday afternoon. The market will continue to see a lot of volatility, and that could be a function of both waiting for this announcement and waiting for the holiday season and its lack of liquidity. The Aussie has been in a downtrend for quite some time, so this bounce has been quite nice but has been but a blip on the radar when it comes to what we have seen over the last couple of months. I believe that we will find a way sooner or later to test the 0.70 level underneath, which is a major round figure on longer-term charts and has had an influence on the market more than once. Breaking down below that level then opens up the possibility of reaching towards the 0.68 level underneath which has been important multiple times. If we were to rally at this point in time, it is not until we clear the 0.72 level that I would stand up and take note, because it would break a resistance barrier that we have struggled with over the last four or five days.
