- The AUD/USD currency pair initially tried to rally on Friday, but gave back gains, despite the fact that it formed a massive hammer during the Thursday session.
- Because of this, looks like we are going to continue to see a lot of downward pressure, and quite frankly the turnaround was a bit surprising.
- The market continues to see a lot of negativity, and therefore it is probably going to continue to see the Australian dollar falling apart.
AUD/USD Breakdown Scenario
If we do break down below the bottom of the hammer from the Thursday session, it’s likely that we could continue to go down to the 0.60 level. The 0.60 level is an area that would attract a lot of attention, and quite frankly I think the market will continue to see a lot of noise in that area. Ultimately, this is a market that I think continues to see a lot of divergence between the 2 central banks, especially as the Reserve Bank of Australia has recently raised rates only 25 basis points as opposed to the 50 basis points. Conversely, you have a Federal Reserve that is hell-bent on raising rates and squashing inflation. Inflation in the United States is over 8%, and quite frankly the Federal Reserve wants it closer to 2%.
The size of the candlestick is rather negative, and therefore is likely to show that there is going to be a significant amount of momentum involved in this market. Even if we did rally from here, I think the 0.64 level above offers resistance, and I think that it extends all the way to at least the 0.66 level. The 0.67 level is a major area of resistance just waiting to happen as it was previous support.
I don’t think that this is a situation where the market simply falls apart, I do think there will be the occasional bounce, but that bounce should be an opportunity to pick up cheap US dollars going forward, due to the fact that the interest-rate differential will continue to spread quite widely, and therefore it’s likely that we will continue to see more of the same that we have seen in the last several weeks. Ultimately, it’s likely that the Australian dollar has not only negative pressure due to the US dollar strengthening, but the fact that Asia is slowing down.
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