The Australian dollar initially pulled back on Thursday but then turned around to show signs of life again. Ultimately, this is a market that I think continues to see a lot of noisy behavior and could very well see a nice correlation to inflation in the United States, when the CPI numbers come out on Thursday.
The inflation numbers have a lot to say about where we are going to go next, so we will probably see a lot of choppy behavior between now and that announcement as traders are trying to figure out whether or not inflation is going to run hot or not. Between now and then, it is essentially just a lot of jockeying back and forth for position. The market has recently seen resistance just above, as the 50 day EMA is sitting above there and sloping lower as well. That could be a bit of a technical issue for traders going forward. If we do break above there and reach above the 0.72 level, then it is possible that the market could really start to take off to the upside.
On the other hand, if we break down from here and clear the 0.71 handle, it is likely that the market will go much lower, trying to test the 0.70 level underneath which is a large, round, psychologically significant figure, and an area that has been important more than once in the past. Because of this, it is very likely that we will continue to see buyers in that area, and if we were to break down to a fresh, new low, then the market could go to the 0.68 level. This is a situation where you would see the US dollar strengthen drastically against everything, not just the Aussie dollar. Ultimately, this is a market that will move based upon risk appetite more than anything else. The markets have made a lot of successive “lower highs”, which suggests that we have a certain amount of negativity. The market will continue to be very noisy more than anything else, so I would keep my position size relatively small until we make some type of definitive move in one direction or the other. The market is one that will continue to see a lot of push and pull in the short term.
