I am looking for signs of exhaustion after short-term rallies that I can jump upon.
The Aussie dollar rallied a bit on Friday as we continue to see a lot of noisy behavior in most markets. The Australian dollar is especially sensitive to a lot of this noise, as it is highly correlated to commodity markets and China. The Chinese market is all over the place due to the fact that people are worried about various lockups, lockdowns, and whether or not there is going to be enough demand. That being said, the Chinese are starting to loosen monetary policy, so it is possible that it could offer a little bit of a bump higher for the Aussie economy.
The 0.68.50 level underneath is a significant support level, and if we were to break down below there, then it’s likely that the market could go lower, perhaps reaching the 0.65 level. Ultimately, this is a market that continues to see a lot of noisy behavior so you need to be cautious about your position size because this market can jump around on you for no apparent reason at this moment.
On the outside, we could make an argument for a move to the 0.70 level, but obviously, that would take a certain amount of momentum. At that point, the market will face more resistance, perhaps extending all the way to the 0.7050 level. This is a market that I think eventually will find plenty of the sellers above, especially as interest rates in the United States continue to pick up. The Federal Reserve is likely to continue its tightening cycle into the slowdown, so I think at this point in time it is only a matter of time before the US dollar picks up again.
That being said, if we were to break above the 0.7050 level, then it’s possible that we could go to the 0.72 level. At that point, it’s a major selling pressure point that I think if we could break above there, then everything changes. Until then, it still remains a “sell on the rally” type of situation going forward. Because of this, I am looking for signs of exhaustion after short-term rallies that I can jump upon. The markets continue to heara lot of noise, but in the end, I think Australia has a lot of problems in comparison to the US dollar as it is getting a boost from interest rates and a safety trade.