- The AUD/USD plunged initially during the trading session as we have seen a lot of volatility in the currency markets overall.
- The CPI numbers in the United States has come out as 0.4% month over month, instead of the projected 0.2%. By doing so, it had the US dollar spiking in strength, but later in the day we had Wall Street come in and start to talk about narratives again.
- Because of this, it looks very much like the market is ready to bounce, but quite frankly picking bottoms is a great way to lose money.
The hammer shape does suggest that we could bounce significantly from here, but I think there is a lot of noise above that could come back into the picture. The 0.64 level is an area where this noise begins, and it extends all the way to at least the 0.66 level. Somewhere in that area, I would love to see signs of exhaustion that I could start shorting. After all, we are a bit overextended in the downtrend when it comes to the Aussie dollar, but I don’t necessarily think that is time to start buying. I think this is a situation where we continue to see the downtrend, but eventually people have to take profit on their short positions.
Short Covering Rally Makes Sense
It will be extraordinarily interesting to see how the market closes for Friday, because it tells you exactly how comfortable people are being long or short the Australian dollar heading into a weekend. Regardless, I think a short covering rally makes quite a bit of sense, but in order to change the trend, we would have to make a massive amount of headway, chewing through multiple barriers such as the consolidation area I just mentioned, the 50-Day EMA, and the 0.67 level, which had been supported previously.
“Market memory” comes into the picture in that area, and therefore think a lot of sellers will be waiting, assuming that we can even get to that area. On the other hand, if we were to break down below the bottom of the amber for the day, then I think is likely that the Aussie dollar goes looking to reach the 0.60 level over the longer term. Keep in mind that the Australian dollar also needs a healthy commodity market to truly get going as well.
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