Potential signal
I am buying this pair on a dip to the 0.71 area with a 50 pip stop.
A return to the highs is what I am looking for.
The Australian dollar initially rallied against the US Dollar on Thursday but has given back a bit of the gains and with that being the case, it looks like we are still struggling to get to the upside. Ultimately though, this is a market that, somewhere near the 0.7250 level, we have a situation where there seems to be sellers willing to jump in.
That being said, I do think we have a situation where a lot of traders are a bit nervous because interest rates are all over the place. After all, the headlines in the situation between the Americans and the Iranians in the Middle East continue to be a fluid scenario and that has rates rising and dropping randomly.
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Interest Rate Markets and Geopolitical Factors
With that and of course the fact that a lot of it is driven by random tweets or comments in the media, it's very difficult to trade the interest rate markets right now and by extension the US dollar. It seems like every time we get a little bit of relief on rates; somebody says or does something that causes chaos.
The Australian dollar is a little bit more resilient against the US dollar mainly due to the fact the market is a different market than many others due to the Reserve Bank of Australia raising rates recently. At this point I think you have to believe that market participants will be looking at this as a buy on the dip market, assuming that we don't get something horrible coming out on the headlines. Unfortunately, we just don't know when that might be.
So, with that being said, the one thing that you need to be cautious about is your position size and I do think that ultimately, we probably resolve to the upside, but short-term dips are going to be a fact of life here. The 0.71 level is pretty significant support so as long as we stay above there, I suspect that we remain somewhat bullish. Nonetheless, one thing you do not want to do is get overly exposed to this market with a huge position.
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