The Australian dollar rallied a bit during the trading session on Monday, although it should be noted that the volume may be a bit thin due to the fact that Americans were still celebrating the extended Independence Day holiday weekend. Nonetheless, the 200-day EMA has held as resistance, and now the question is whether or not we will roll back over, or if we will break above there and go looking towards the 0.76 handle.
I believe that the market is still very vulnerable, due to the fact that we have formed a large “H pattern” and still have not been able to pick up any serious momentum, despite the fact that Friday was so bullish. At this point, I have to look at this and think that perhaps a lot of what we had seen on Friday was probably due to the short covering that traders would have done heading into the longer-than-usual weekend. Furthermore, the market had been hanging about the 0.75 handle, which in and of itself is relatively psychologically important.
If we can break down below the Friday candlestick, then it is likely that the market will rather significantly from there. Rallies at this point would be very difficult to get involved in, at least until we break above the 0.76 handle, and even then I would be a bit hesitant. In general, this is a market that I think continues to see a lot of volatility and risk influence, especially as the Chinese PMI numbers out of the services sector are on the verge of contraction due to the significant move lower to the reading of 50.3 for the month of June.
Keep in mind that the Australian dollar is highly influenced by China and commodities in general. With this being the case, the market is likely going to continue to see a lot of volatility, but if we did break above the 0.76 handle and perhaps even the 50-day EMA, then the market is likely to go back towards the 0.78 handle. At this point, the market looks top-heavy, and it is more likely than not that we will see selling pressure soon. This is especially true as the US dollar seems to be stabilizing against almost all currencies.
