In general, this is a market that is going to remain volatile if nothing else.
The Australian dollar has fallen a bit during the course of the trading session on Monday, as there are a lot of concerns out there when it comes to the Chinese credit situation. With that being the case, it does make quite a bit of sense that the Aussie has been all over the place due to the fact that we are so concerned about the Evergrande situation, as the Australian dollar is not only sensitive to risk appetite, but also sensitive to what is going on in the Chinese mainland.
The ship the candlestick is somewhat supportive, but really at this point I think what we are looking at is a scenario that sellers will jump into the market and push lower. The 50 day EMA is sitting at the 0.7362 level and slumping lower. That could be a short-term ceiling, so I think that if we do get some type of rally, we could start shorting this market at the first signs of exhaustion. Alternately, if we were to break down below the bottom of the candlestick, then I think we probably start to take out the 0.72 handle. Underneath there, then it opens up the possibility of a move to the 0.71 handle. That is an area where we had made a major bounce from previously.
I think a lot of this probably comes down to the overall attitude of the world more than anything else, as the Australian dollar is a “risk on currency”, and of course the US dollar is considered to be a “safety currency.” Furthermore, we need to pay close attention to whether or not Chinese demand looks like it is going to pick up or not, because most of the hard assets coming out of Australia end up in that country. All things been equal though, we are in a downtrend so I think rallies will continue to be sold into, and of course a break down below the bottom of the candlestick could have this market going lower. The 200 day EMA above is a major resistance barrier at the 0.7454 level, so if we get above there then I might become bullish, but between now and then it is almost impossible to see that happen anytime soon. In general, this is a market that is going to remain volatile if nothing else.