AUD/USD Forecast: Rallies as Thin Holiday Liquidity Distorts Action

The Australian dollar rose slightly on Friday, but keep in mind that it is a holiday in the USA.

AUD/USD

The Australian dollar rallied a bit against the backdrop of thin liquidity on Friday, as we continue to see the 0.6950 level offer a bit of a barrier. If we were to break above that level, then we could see a little bit further upward pressure, but ultimately, I think it's probably going to be a situation where you need to see signs of exhaustion before you can start shorting.

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As far as buying the Australian dollar, I'm not as keen to do so, at least not yet, as traders will have to assume that the lack of liquidity probably will remain something that you need to keep in the back of your mind. Keep in mind that the reaction to the jobs number was immediate, but we also lost half of the gains on Thursday, so the question at this point in time is whether or not we are going to see any follow-through. I don't know that we do, and I would love to see an exhaustion candle in order to start selling.

Correlations and the US Dollar Factor

If we were to break above the 50-day EMA, then we could go looking to the 0.7150 level. The Australian dollar, of course, is highly correlated to Asia and commodity markets, and as things stand right now, I don't really like either, at least as far as Asian currencies. Asian stock markets have been on fire as of late, but the Aussie has been a bit of a laggard.

Now, if we start to see the US dollar fall apart, then the Australian dollar gets interesting. I think above the 0.70 level, then you can really start to think about buying, and most certainly, by the time you get above the 50-day EMA, I think it will have changed the overall attitude. So far, from a technical analysis standpoint, it does look like the buyers are trying to keep the uptrend intact, but again, Friday wasn't a real trading day due to the holiday in America, so you can only read so much.

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