Anticipate a lot of noise, and use a reasonable position size.
The Australian dollar rallied significantly on Tuesday after initially dipping lower. The size of the candlestick is rather impressive, and this suggests that the market is going to continue to hang about the crucial 0.75 level. You can see that we had been very noisy in that area, and it is probably worth noting that the weekly candlestick from last week was a massive shooting star. In other words, even if we continue to rally from here, things are not going to be simple or easy.
The last couple of weeks have seen the Reserve Bank of Australia drop the word “patience” from its statement, it had people thinking that the Aussies would become much more hawkish. At this point, the Federal Reserve is extraordinarily hawkish, and the very next day after that announcement from Australia, the FOMC Meeting Minutes were releases, which sounded much more hawkish than originally thought. That is how we broke down over the last couple of days.
I think we are trying to determine whether or not we are going to go back and forth around the 0.75 handle, or if we are going to turn around and fall significantly. If we wipe out this massive candlestick on Tuesday, I think that would be a very negative sign, especially if the US dollar starts to see strength against multiple currencies, not just this one. Alternately, if the US dollar suddenly gets serrated, we could see bullish pressure in this market, but right now I see so much in the way of resistance above that could cause a lot of noisy behavior. In other words, I do not like buying this market, at least not right now. Ultimately, if we were to break down for a more negative turn of events, I will be much more comfortable shorting.
Pay attention to the commodity markets, because that has a major influence on what happens to the Aussie dollar as well, and of course the entire Chinese situation. I think there is a lot of noise coming out of the mainland at the moment, so you need to be cautious putting a huge position on, as I think all it will take is one random headline to send this market ripping or falling apart. Anticipate a lot of noise, and use a reasonable position size.