At this point, I think this is a situation where we are simply seeing a bit of a “bear market bounce”, which one would expect after a major breakdown.
- The AUD/USD initially plunged during trading on Wednesday but then turned around to show signs of strength again.
- It’s a short-term situation, with the 0.65 level being broken above.
- Ultimately, this is a situation where we are more likely than not going to see a continuation to the upside, but this is a region that is only minor, even though the 0.65 level is a large, round, psychologically significant figure.
The 0.67 level is an area that was important previously, as we had formed a major double bottom and an area where there had been a ton of support. The market will more than likely be a difficult one to buy, as there has been so much in the way of downward pressure. At this point, I think this is a situation where we are simply seeing a bit of a “bear market bounce”, which one would expect after a major breakdown. The 0.67 level on the upside should cause a lot of resistance, as it is a huge area of importance in the past, going back several years.
Volatility Likely to be an Issue
The fact that we have rally should not be a huge surprise, because quite frankly the market is celebrating the fact that the Bank of England has stepped in and tried to support its currency, by ironically offering to buy bonds, which is quantitative easing. However, at the same time they also said that they were going to raise rates. I think at this point the market is just happy that somebody is trying to do something.
I think at this juncture, we are likely to see a lot of volatility, but as soon as we see signs of exhaustion, I am more than willing to start selling. This will be especially true if it is near the 0.67 level, but I don’t even know that we get all the way up there. The alternate scenario courses if we break down below the bottom of the candlestick for the trading session on Wednesday, which would show a complete selloff. At this juncture, it’s worth noting that we are at extreme lows, so I do think that volatility is going to be an issue. I’d be more than willing to short, but I would also jump in very slowly, and build a position.