The Australian dollar initially shot higher during the trading session on Tuesday, pole vaulting above the 200-day EMA after the RBA are now expected. While the Reserve Bank of Australia was not quite as dovish as people may have feared, the reality is that the market turn right back around during the European session to start selling off. We will eventually break down below the 0.75 handle to form a bit of a shooting star. The 200-day EMA sits just above, and it does continue to have at least some influence on the market.
If we break down below the bottom of the candlestick for the trading session on Tuesday, then it is possible that we could go looking towards the lows from last week, which would be a somewhat negative move. Breaking down below there opens up the possibility of a much bigger move, perhaps down to the 0.70 area, as it would be a very bearish look and could continue to see a bit of momentum based upon all of the air pockets underneath.
To the upside, we need to clear at the very least the highs from the last couple of weeks, which can be found at the 0.76 level. That is represented by a couple of shooting stars, so it is obvious there has been a bit of selling pressure in that area anyway. Breaking above there would be a very bullish sign, perhaps opening up the possibility of a move towards the 0.78 level above, which had been significant resistance previously.
One of the things that has had my attention over the last couple of days is the fact that the Services PMI figure in China for last month came in at 50.3, just barely above contraction. If the Chinese economy does in fact start to contract a bit, that would be very negative for Australia, which is highly dependent on exporting commodities to mainland China itself. Beyond that, we are seen a little bit of US dollar strength against multiple currencies, so it is not just here that we could see it play out. It is very likely that the market will continue to offer selling opportunities on short-term rallies at the very first signs of exhaustion. That is how I'll be playing the market, fading rallies.
