By: Christopher Lewis
The AUD/USD pair has been beaten up over the course of the last few weeks, as the fears of a Chinese slowdown rocked the risk appetite around the various Forex, futures, and stock markets. The “slowdown” would be from a growth rate of 12% to “only” 7%, which of course would be phenomenal if we were talking about anywhere else in the world.
The Chinese buy a lot of the commodities that Australia exports, so in some ways the Aussie can be thought of as a “China play”. The commodity markets as a whole can have an effect on the Aussie, but in particular the gold and copper markets tend to push prices. The Chinese buy a lot of their copper from the island as they build their large construction projects, and electronics in the factories on the east coast. As this relationship holds and the Chinese Yuan cannot be traded, this allows the Aussie a unique position.
Oversold?
The pair’s massive fall was more than likely an overreaction to the lower than expected growth figures we have seen recently, but we must remember that the slowdown has been engineered by the central bank in China, and therefore this shouldn’t have been a surprise.
Looking at the charts, we can see that the 1.04 handle has held as support. The area is important as the level was the spot where the ascending triangle that sent the pair higher was broken. The triangle measured a move up to the 1.12 level. The pullback to the mark was met with support, and the 38.2% Fibonacci level. The area also is the place where price met the 200 day EMA as well, so trend traders will have undoubtedly been attracted to the pair at that point. With this in mind, I went long – it wasn’t a real stretch to see a bounce coming.
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I will be proven wrong it we break the lows, but if not I feel that we are going to head to 1.06 quickly as it was the spot of support of the previous consolidation area. I believe that the area will only be a minor stop on the way to 1.08 though, and am aiming for at least that level.