The Australian dollar fell rather hard on Tuesday, reaching down towards the 200-day EMA. In fact, we closed towards the bottom of the candlestick which is a very negative sign, but we are also sitting on top of what I would consider to be a significant support level. With that being the case, I am going to sit on the sidelines for 24 hours and wait to see how the market closes. Looking at this chart, the market is likely to see on the first to admit that this is not the candlestick you want to see. Most of the time you see a candlestick like this, there is going to be a bit of follow-through.
There is a huge “W pattern” that has been formed, but we need to turn things around in the next day or two before the whole thing falls apart. Australia continues to suffer at the hands of China, which seems to be slowing down a bit. As long that is going to continue to be the case, the Aussie dollar may be a bit of a laggard going forward. We need to see the market hold in this general vicinity in order to attract enough people looking to pick up “cheap Aussie dollars”, so I think you are probably better off sitting on the sidelines and waiting to see whether or not we get a chance to go long.
That being said, if we were to break down below the 0.7350 level, then it is likely that we could go looking towards the 0.72 level. That would obviously be very negative, as the Australian dollar is highly levered to commodities, but I would also point out that a lot of my stock market watch lists when it comes to hard commodities have been a bit soft over the last 24 hours as well. Ultimately, the Aussie continues to be a place where we are lagging behind some of the other currencies, so if we do get a turnaround this might be the best place to play it, but right now we simply do not have anything telling us different. For the next 24 hours, it is fair to assume that I will be flat when it comes to this pair.
