The Australian dollar initially tried to rally during the trading session on Tuesday, trying to take out the 0.75 handle. However, as the day went on, we started to see this market roll over, especially as the CPI numbers in the United States came out much higher than anticipated. Since then, we have seen the US dollar strengthen, as the market continues to drive down towards the crucial 0.74 level. The 0.74 level was the scene of the most recent bounce, and during the day on Tuesday we certainly made a run towards it.
If we can break down below the 0.74 handle, then I believe that the Australian dollar is very likely to continue going much lower. In fact, at that point in time, it would open up a continuation of the downtrend that has been forming to reach all the way down to the 0.70 region. When you look at the market just above, you can see that we ended up forming a major “H pattern.” That is one of my favorite patterns to start selling, as it shows a bit of a very limp bounce after a crash.
To the upside, if we were to break above the 200-day EMA, then it is possible that we may make a run towards the highs of the previous week, which now are backed up by the 50-day EMA. The 50-day EMA basically sits at the 0.76 handle, so obviously that is an area that I will be paying close attention to. It is once we break above there that I would start buying. Nonetheless, I do recognize that we could be a bit noisy in this general vicinity, so it is likely that we are going to be very noisy at this point, especially as the US dollar is making a lot of noise and trying to break a massive trend line to the upside on the US Dollar Index. If that continues to see strength, perhaps breaking above the 93 handle, that will be felt over here as well, as the greenback will be like a wrecking ball for all risk assets, many of which the Australian dollar is highly correlated to. It certainly looks as if we are “lumping lower”, and that is probably the most important thing to pay attention to.
