The Aussie dollar isn’t one of my favorite currencies at the moment. The Aussies have recently cut their rates, and it looks like they are set to do so again in the near future. The Aussie is also highly correlated to risk assets and risk appetite in general, and as the economic outlook for so much of the planet is questionable, it is hard to think that buying the Aussie is the right thing to do.
More pressing than anything else, it looks as if China is slowing down. The Australians send a lot of their raw materials to China to be used in the manufacturing process that supplies so much of the world with “stuff.” One way to think of Australia is that it is China’s “general store.” As long as the Chinese are manufacturing at a strong pace, the Aussies will have a large customer to the north that will be willing to buy their gold, copper, and many other exports.
However, what then happens if China’s customers suddenly find themselves broke? Remember, Europe is China’s largest trading partner – not the United States. With the recession in Europe, this is starting to cut into demand for Chinese products. Also, the United States isn’t exactly running on all four cylinders either, so there is more than likely going to be continued slowing in the demand part of the equation.
Hammer at the parity level – and the 50% Fibonacci level.
Even with all of that being said, there is a somewhat bullish feel to this chart. The Monday action managed to form a hammer, and this was even formed at the “perfect” spot. The parity level makes sense as a potential support level based not only on the level itself, but the cluster of action two weeks ago. Adding to all of that, there is the 50% Fibonacci retrace level as well.
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The hammer for the Monday session sets up rather nicely as a signal. Obviously, there is a bit of bullishness to this if we go higher at this point. However, don’t forget that a failed buy signal like this means something too. In other words, I am buying on a break higher, and selling on a break of the bottom of this hammer as it would be very bearish.