The AUD/USD pair fell on Monday, and closed below the 1.05 level. This is very interesting, as the "risk on" rally was in full effect last week. This of course was due to the Federal Reserve announcing seemingly unlimited quantitative easing. This will drive money into higher risk asset, and as such the Australian dollar should benefit.
The Friday close was very interesting to me. This was mainly because we formed a shooting star and the 1.06 level. This area has been resistance previously, and as a result a caught my attention because it formed a potential double top. The real question would be why with the Australian dollar suddenly run out of steam? I mean, after all the Federal Reserve is bringing US dollars as quickly as it can, so why wouldn't the Aussies with his their wealth of natural resources enjoy a stronger A dollar? Obviously, gold follows the Australian dollar and vice versa quite often, so one would think that correlation would still continue.
Perhaps a warning?
One of the things that I did notice right away was the fact that the shooting star was essentially retesting the bottom of the uptrend line that had been broken previously. This is basic technical analysis, but I was so focused on the 1.06 handle, that I missed this seemingly obvious warning. This would've been easy to do, as the Federal Reserve announced such drastic quantitative easing, many people would be looking to the Australian dollar to advance.
I myself am not ready to call for the crumble of the Aussie dollar, but I do see the potential for a move down to the 1.03 level. This could happen if we get a break below the lows from the Monday session.
Going back to the question of why the Australian dollar would fall, one of the biggest reasons is China. China has the misfortune of having to sell their goods to the Americans and Europeans, which of course are buying them. There is a slowdown in China, and one would have to wait and see whether or not the Chinese can work around it. Either way, there could be fear in the market over whether or not the Chinese will continue to buy Australian minerals.
An obvious buy signal in this pair would be a break above the highs from Friday. If we do break the lows from Monday, I think that we will test the 1.03 level. Nonetheless, I think this is going to be one of the most important pairs to watch right now even as the rest of the world is concerned about the EUR/USD.