Potential signal:
- If we break down below the 0.6450 level, I am short of the Australian dollar.
- I would have a stop loss at the 0.6510 level and would be aiming for the 0.6250 level.
The Australian dollar initially dipped against the US dollar during the trading session on Tuesday but then turned around to show signs of strength again. Ultimately though, this is a pair that underperforms a lot of other pairs in terms of US dollar bearishness, so I think if the US dollar does in fact start to pick up strength, this will be the first place where you see it.
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Technical Analysis
I think at this point in time it’s worth noting that we are sitting right at the 50 Day EMA and sitting above the crucial 200 Day EMA as well. If we can break down below the 200 Day EMA, then it opens up the possibility of a move down to the 0.6450 level, where we had bounce from on Friday. Keep in mind that candlesticks from Friday was based on the assumption that the Federal Reserve is likely to cut interest rates. While that may still be the consensus, then you have to ask questions as to whether or not it is going to actually happen, or perhaps more importantly, whether or not there are major issues out there when it comes to the economy.
Ultimately, if we break down below the big candlestick from the Friday session, I think that will be “lights out” for the Australian dollar. On the other hand, if we can break above the 0.6550 level, that would be fairly strong, but it does tend to be an area where we see a lot of noise, and that being the case, I think you are still looking to fade signs of exhaustion. If we get a breakdown, I will not hesitate to short the Australian dollar as it has underperformed pretty much everything else against the US dollar. Furthermore, in times of economic distress, the US dollar far outperforms the Australian dollar, and that might be something that we have to think about.
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