- The AUD/USD initially trying to rally during the trading session on Wednesday but continues to struggle around the 0.68 level.
- At this point, the 200-Day EMA sits above there and that should offer a significant amount of resistance as well.
- At this point, the market is likely to see this is a situation where we are done, so now I think it’s only a matter of time before we drift lower.
When you look at the interest rate situation, the 10-year yield has dropped, but at the same time the 2 year yield, the part of the curve that the Federal Reserve controls, has barely moved over the last several sessions. In other words, monetary policy has not changed yet, so at this point it’s likely that we will see the US dollar pickup strength again. The idea that we are going to see a “pivot” from the Federal Reserve is laughable, and I think people are starting to come to terms with that. Furthermore, the market is going to try to attach Australia to China, which is now starting to talk about a potential lockdown in a few cities. Furthermore, the Australian dollar is highly correlated to commodities, which are going to fall if there is a lack of demand around the world with growth dissipating everywhere.
US Dollar Likely to Become More Attractive
At this point, I think the market is just gotten far ahead of itself so at the margin I would anticipate this market dropping. On the other hand, if we were to break above the 200-Day EMA, it’s likely that we could go to the 0.70 level where you would see a lot of psychological and structural resistance at. Anything above there would have this market turning around completely, and the Australian dollar would almost certainly enter a new bullish phase. I don’t anticipate that happening, but I’m aware that we could very well see that happen.
As the world continues to see a lot of concerns, it does make a lot of sense that the US dollar will continue to be attractive. Furthermore, the Federal Reserve has a whole host of speakers over the next couple of days, which are probably going to continue to try to tell the market that it has gotten far ahead of itself in its assessment of monetary policy.
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