The AUD/USD pair was bullish during the Thursday session, but like all other rallies that this pair has seen recently, the end of the day Saul profit-taking. The candle looks very much like a shooting star, and it is still well within the tolerance of what would be considered resistance from the bottom. This suggests to me that we are still fighting to figure out whether or not we can continue higher.
Recently, this pair has been continuing to consolidate between the 1.02 and 1.06 levels, and the fact that we broke down through in a few sessions ago does of course suggest that weakness is coming into the market. I think that the Australian dollar is more than likely going to weaken, but the fact is there are so many people that are long of this position right now is going to be hard to break it down.
The Reserve Bank of Australia is expected to cut rates at least once, if not twice before the end of spring. This of course will weigh upon the value of the Australian dollar, plus there is also concerns coming out of China. As long as the Chinese economy tends to slow down, this will of course have a negative effect on the Australian one as the Aussies are so dependent on exports to China.
Watch the gold markets
The gold markets could also be a predictor as well. The Australian dollar does tend to follow the gold markets, and as such is very possible that we could see the Aussie gain because of gold even though there is US dollar strength around the world. However, we could also see a selloff of the gold markets, and this of course would be horrible for the Australian dollar. Simply put, it would be a return to the "safety trade", and this of course always weighed against the Australian dollar.
I will buy the Australian dollar however if we managed to clear the 1.03 level. Until we do that though, I am suspicious and looking to short it. A break of the 1.02 level again would be enough to convince me to start selling.