The Australian dollar rallied on Monday to kick off the week and break above the 0.71 level. However, we have sold off quite drastically to show signs of hesitation later in the day, as we continue to see a lot of trouble. Ultimately, this is a market that I think given enough time will see sellers step back into the market and push things lower. After all, the Australian dollar has been in a downtrend for a while, so it does make sense that we would see a continuation of that.
At the first signs of exhaustion, which is something that we had seen during the day, I would be shorting this market. The 0.70 level underneath is a large, round, psychologically significant figure that people will pay close attention to and could cause a certain amount of noise in the market. If we were to break down below there, then I think we will probably have quite a bit of negativity getting ready to pile on.
Keep in mind that the Aussie dollar is highly levered to commodities and China. That being said, the market is likely to see a lot of concern in this kind of environment, and as a result, it is more likely than not going to be better served to fade short-term rallies. If we break down below the 0.70 level, then it is likely that we will go looking to much lower levels, perhaps down to the 0.68 level where we had bounced from previously. It is a situation in which I have no interest in buying, at least not until we break above the 0.72 level on a daily close at the very least. If we were to break above there, then we could go looking to reach the 200-day EMA. Clearing that level then allows the market to go looking for 0.75 after that.
Keep in mind that the US dollar has been strong against almost everything, so it does make sense that we will see that being the case here as well. In general, I think the one thing that you can keep in mind that we have seen is a lot of choppy behavior, and it is likely that you will probably need to focus on shorter time frames.
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