The AUD/USD pair is one of the most interesting ones to trade at the moment as it is purely a “risk on, risk off” environment. The Aussie has a lot of different things sinking it at the moment, some of which originate out of Australia, and many others that don’t.
The European debt crisis has a lot of traders out there worried. The debt markets are spiking in yields, and the fact is that there is almost a resignation that Greece is going to leave the European Union, and not in an orderly manner. The elections in June will be pivotal to the future of Greece, and it is probably a decent bet that the elections are not going to go well for those that are pro-austerity. We could be looking at a default in a relatively short amount of time as the ECB is now starting to pull away from Greek banks as they don’t even have the recapitalization required to continue the monetary operations that the ECB was doing with them. In other words, the banking system in Greece is an absolute mess.
The global ramifications of a messy and sudden default will be far reaching, and as a result traders will sell risk first and ask questions later. This includes the Aussie dollar, a currency that is highly correlated with Chinese growth, which of course is a sign of global growth. If the Chinese aren’t expanding, there is little need for Australian goods, and the same will be said of the currency.
Easing as well. 0.96 is my target.
The bearish flag on the daily chart measured a move down to the 0.96 level, an area that seemed almost impossible just a couple of weeks ago. However, with the recent price action and all of the headline risks out there, it is much more feasible at this point.
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I will sell a break of the lows of the Wednesday candle as it shows the hammer giving way. (A very bearish signal.) If we bounce from here, I am looking for bearish price action above to sell the rally as it should only provide a higher price to sell from.