- The AUD/USD has gapped slightly lower to kick off the week but then turned around to rally toward the 0.68 level.
- The previous candlestick is an inverted hammer, which shows the signs of exhaustion on rallies. If the market were to break above the top of this inverted hammer, the market could go looking to the 0.69 level, possibly even the 50-Day EMA above there.
- In other words, I think that if we do rally from here, it’s likely that we are going to see a lot of resistance above and it is probably only a matter of time before the sellers get involved.
It is not until we break above the 0.70 level that I would consider this market as picking up significant momentum, but even there we would have to deal with the 200 Day EMA which currently sits at the 0.71 level. It’s not until we break for all of that that I would consider being a buyer of the Aussie dollar. Keep in mind that the Australian dollar is a risky asset and destined to follow commodity markets. It tends to follow hard assets more than anything else, as Australia sends a lot of copper and other metals to the Chinese.
Volatility Ahead
It is because of this that the Aussie dollar is also considered to be a bit of a proxy for China, so we need to pay close attention to what’s going on there as well. As the 2 economies are so interlocked, the Australian dollar is quite often used as a proxy for China itself.
Underneath, the 0.67 level is an area that has been important more than once, where we had bounced from previously. The hammer from that bounce suggests that there is a certain amount of support there, and of course, it’s an area that has been important multiple times in the past. If we were to break down below there, the market could start to fall towards the 0.65 level. That is a huge area where we have seen a lot of buying pressure in the past, so in that scenario, I anticipate that the US dollar is probably rallying against everything. Keep an eye on this market and your position sizing of the volatility will continue to be a major issue.
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