This pair could be a bit of a tough one to trade in the near term. After all, the Australian economy is heavily influenced by the mining sector, and this is heavily influenced by exporting to places like China. In fact, one of the best ways to think of the Aussie is to trade it as a proxy for the Yuan. As long as the Yuan isn’t traded freely, the Aussie will be the preferred proxy for it.
The recent global outlook isn’t all that hot. Because of this, I think that the Aussie will suffer over time, but there are of course going to be bounces from time to time. I believe that we may be in one of those bounces right now, as we saw the market find support at the parity level, which of course is also the 50% Fibonacci level from the fall. (This has been moved above and below in the past – but quite often the markets will react none the less.)
The Chinese economy is supposedly slowing down, and there are now reports that the country may be moving more slowly than previously thought. Antidotal evidence coming out of China suggests that the economy is struggling in many ways. After all, this shouldn’t be surprising to anyone who has read about the “Ghost cities” that have been built in the western part of that country. If you are in a situation where you are building cities to increase employment and not to house people – you probably have a serious underlying problem. However, I am probably getting far ahead of myself at the moment.
Parity, 50%, and 1.02
For my money, I think the hammer that formed at the parity level was about as simple as it gets. However, it is against the fundamental and technical analysis as far as the trend goes – so buying wasn’t the easiest thing to do yesterday. However, now we have to think about where to go from here now. The easiest route is going to be lower, and I think the 1.02 level should keep a lid on things. We are only one headline out of Europe from a selloff in the commodity currencies, and as a result I am willing to sell on bearish action in general.
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