It makes no sense at this pair would rally for any significant amount of time.
The Australian dollar fell hard Monday to break through the 0.6750 level. This is an area that has offered a significant amount of support previously, and it’s likely that a lot of people continue to pay attention to it. Ultimately, this is a market that continues to see that area as important, despite the fact that we have sliced through it.
We have bounced a little bit from the lows, and it looks as if the 0.6750 level could offer a little bit of “market memory” in that area so that short-term traders will pay close attention to signs of exhaustion. Beyond that, we then have the 0.6850 level, which was a major barrier to the market previously. With this, I think it makes sense that we will continue to respect that area due to “market memory” as well. Ultimately, the Australian dollar has been in a downtrend for some time, and I think that will continue to be the case going forward.
The 0.67 level did offer a little bit of support previously, and if we do break down below there, it opens up the possibility of the Aussie going down to the 0.66 level. The market has been drifting lower due to the concerns of global traders of recessionary headwinds. Ultimately, I think this is a scenario where we see plenty of “fade the rally” type of situations. The size of the candlestick is rather long, so that does suggest that it is going to continue to see a lot of follow-through.
If we were to break above the 0.69 level, then we would almost certainly look to the 50-day EMA. The 50-day EMA is at the 0.70 level, an area that is a large, round, psychologically significant area, and it’s likely that we will see a lot of resistance there as well. Quite frankly, with the Federal Reserve continuing the tight monetary policy and the Australian dollar being so heavily influenced by commodities, it makes no sense at this pair would rally for any significant amount of time.
If we break down below the 0.67 level, then it should accelerate the move to the downside, and the 0.66 level is an area that’s very important to pay attention to. If we do break down below there, the bottom is going to fall out and the Australian dollar will collapse.