The Australian dollar has gone back and forth during trading on Friday, initially showing signs of strength but then fell again. However, by the end of the day we ended up forming a bit of a neutral candlestick, and that of course suggests that perhaps there is some stability here after the massive selloff on Thursday, but quite frankly this is a scenario where the candlestick might show confusion more than anything else. After all, the market has been straight up in the air for some time and that suggests that the market could very well be overbought. Ultimately, I think that the market is going to make a serious decision in the next couple of days it should be paid close attention to.
After all, the Australian dollar is highly levered to the Chinese economy, and of course risk appetite in general. With that being the case, we are going to need to pay attention to whether or not the attitude is “risk on” or perhaps “risk off.” If it is “risk on”, then the Australian dollar will take off to the upside again. However, you should pay attention to the fact that the 0.70 level has offered significant resistance in the past so it is highly likely that we will see that resistance again. In fact, I think that there is a major area between the 0.70 level and the 0.71 level that continues to be massive in its pressure, and I think that also will be a determining factor as to where we go next. If we can break above the 0.71 level then the Australian dollar becomes more of a “buy-and-hold” scenario, but I just do not see that happening easily.
There has been a decent range for the trading session on Friday, so it shows that there is a lot of volatility. I think at this point it is likely that we will look to the downside and go to the 0.6675 handle underneath, which was previous resistance. Break to the upside, then we have to start that fight again at the 0.70 level. I do favor the downside, but I think you will get several opportunities to short this market again. However, if we do break above the 0.71 handle, then it signifies a longer-term opportunity to buy-and-hold. All things being equal, we are about to make a move so pay attention to the levels mentioned.
