I think signs of exhaustion will continue to be the signal that you are looking for.
The AUD/USD currency pair has rallied significantly to reach the 0.69 level Tuesday. This was a reaction to the Reserve Bank of Australia releasing its Monetary Policy Meeting Minutes, which suggested that the RBA is going to be paying close attention to inflation. In other words, it’s likely that what you’re going to see is a bit of tightening as far as monetary policy is concerned. That is going to be somewhat positive for the Australian dollar, but it comes in degrees. In other words, when you are measuring against the US dollar, the measurement should be thought of in terms of what’s happening with the Federal Reserve.
Speaking of the Federal Reserve, the market is likely to continue to see reasons to tighten the monetary policy situation as inflation continues to rip higher. In other words, think we’re going to see a lot of back and forth, so it’s likely that would be seen as a lot of volatility, but I do believe that the downtrend is very much intact. The 50-Day EMA sits just below the 0.70 level, suggesting that the area could be a significant amount of resistance as well. At this point, what we are looking at is a situation where we have had a nice bounce, but quite frankly we have a longer-term downtrend that seems to be very stable.
If we break above the 0.7050 level, then it’s possible that we could turn things around, but that would more likely than not have a lot to do with what the Federal Reserve does next. The Federal Reserve is going to continue to see plenty of reasons to stay tight, so unless they change their complete attitude, I just don’t see how things change. However, it is worth noting that the 0.67 level is a major support level on longer-term charts, so it’s not overly surprising that we have bounced. Whether or not we can hang on to this bounce would be a completely different scenario, but at this point in time, it looks like a market that is going to continue to be noisy more than anything else. Typically, very volatile markets do not hang on to gains for very long. I think signs of exhaustion will continue to be the signal that you are looking for.