The Australian dollar rallied rather significantly to kick off the trading week on Monday, reaching above the 0.72 handle rather easily. Because of this, the market looks as if it is going to continue to reach towards the 200 day EMA, assuming that some type of good news comes out. For that matter, maybe it is not even good news that we need, it is just less bad news. Ultimately, the market is probably going to continue to be very noisy and difficult to navigate, but at the end of the day, we are still very much in the same range that we had been in.
The size of the candlestick is of course important, and it does suggest that there is a significant amount of bullish pressure. However, all it would take is one “risk-off headline” out there to get the Aussie going in the opposite direction. One thing that you need to pay attention to is the fact that the Reserve Bank of New Zealand has suggested that interest rates hikes are going to continue, and the Australian dollar does tend to move in concert. With that in mind, we could take out the 200 day EMA above, which is essentially at the 0.73 level.
On the downside, we could look towards the 50 day EMA for support near the 0.72 handle, which is a large round number that has caused quite a bit of interest. If we break down below there, then the next support level is near the 0.71 handle, where we had bounced from during the Thursday panic. If we break below there, then it is very likely we go looking towards the 0.70 level. I think at this point it is likely going to be very well supported because we had seen so much buying pressure there previously.
We may be simply going to continue to consolidate between 0.70 on the bottom and 0.73 on the top. However, if we break above the 0.73 handle, then we may go looking towards the 0.75 level which is of massive importance. Breaking above there would kick in a longer-term “buy-and-hold” type of scenario, but you would have to see the US dollar selling off in general in order to see that happen. The Australian dollar has been very strong as of late, but it still has not broken above the most recent high.
