The Australian dollar has gone back and forth during the trading session on Friday, showing signs of extreme volatility. The market initially pulled back but then rallied again, only to pull back at the end of the session. The candlestick isn’t necessarily the most bullish out there, but one thing that should be paid attention to is that the US dollar has been losing strength against many other currencies. In other words, it’s very likely that the Australian dollar needs to play a little bit of “catch up.”
I do see a significant amount of resistance above at the 0.67 region, and I think that a rally towards that area will probably see a certain amount of bearish pressure. The area extends all the way to the 0.6775 handle, so once we get above there then I think you can start thinking along the lines of a potential trend change. That being said, I think in the short term we may get a little bit of a pullback, but the pullback is probably just going to be a nice buying opportunity. The 0.65 handle underneath should be massive support, and at this point it’ll be interesting to see whether or not we could even break down below there. I did think at one point we were to go to the 0.63 level, and that is still possible but at this point the US dollar is likely to see more negativity going forward.
The Australian dollar will be a bit different than so other currencies though because it is so highly tied to the Chinese economy. If the Chinese are in fact going back into work, then it should continue to drive up demand for Aussie commodities. That in the end will be what the market pays the most attention to. If the market continues to see US dollar weakness, then it’s very likely that the Australian dollar will eventually follow suit right along with the Euro and the Pound. With this, I expect a very volatile couple of sessions, but it should continue to favor shorting the US dollar in general. The Australian dollar may be a laggard, but one gets the sense that eventually the “floodgates open”, and everything gains against the greenback. However, if we do get a slew of negativity coming out of China, then it’s possible that the market roles over again, but ultimately that seems to be unlikely.