- The AUD/USD rallied during the trading session on Tuesday, facing resistance at the 0.67 level, an area where there has been a lot of action in the past.
- Just a couple of trading sessions ago, two shooting stars were formed, which is typically a very bearish sign.
- It's also worth noting that the 50-Day EMA is just above and dropping, making it a dynamic resistance barrier that is being closely watched.
- As a result, this market is more or less going to be a "fade the rally" type of market.
It's important to keep in mind that the Australian dollar is highly levered to the commodity market. Australia is a huge exporter of hard commodities such as copper, iron, and gold. Therefore, paying close attention to the commodity markets is crucial, as they are highly influenced by the overall economic health of the world, with demand for commodities being highly correlated. Furthermore, it also depends on the health of the Chinese mainland, as Australia sends a majority of its exports to that part of the world.
The Market is Slowing, Choppy and Confused
If the market breaks to the upside, it's not until the 0.68 level is cleared that it would be an impressive move. In that scenario, the market could go toward the 0.69 level where it would run into further resistance. On the other hand, if the market breaks down from here, it could reach the 0.66 level, where there is a considerable amount of support. Anything below there would open up a bit of a trapdoor, allowing the markets to flood to the downside.
The overall attitude of the markets is slowing, choppy, and confused. It's likely to remain the same in the AUD/USD pair, with more of an eye on the downside than the upside. In the short term, big moves are not expected, and a range-bound scenario is likely to continue. This makes a lot of sense, as there are a lot of concerns around the world and quite frankly there’s a lot of confusion. The Australian dollar tends to be “Ground Zero” for risk appetite in the Forex markets, as we see this as a situation that is a proxy for whether or not traders believe that we are going to see an inflationary recession, or if things are finally starting to turn around.
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