The Consumer Price Index in the United States came out as expected on Wednesday, showing that although there is inflation, it is not accelerating. Because of this, the US dollar got sold off just a bit and that showed itself in the Australian dollar as well. The Aussie dollar continues to see the 0.74 level above as resistance, as it has previously. Furthermore, the area had been support before, so you would think that there is a significant amount of resistance keeping the market under wraps.
If we break above the 0.74 handle, then it is very possible that we will go towards the 0.75 level, an area that I think would be even more resistive. The 0.75 level is not only an area supporting resistance, but it is also a large, round, psychologically significant figure. The 200-day EMA sits right there as well, so I think that has a lot to do with it more likely than not offering a bit of the ceiling. Obviously, if we were to break above that level it would be a significant move just waiting to happen.
If we did break above the 0.75 level, then the market could very well go looking towards the 0.76 level. At that point, we could also see more of a bigger push to the upside as well, a longer-term “buy-and-hold” scenario. To the downside, if we break down below the 0.73 level, then it is likely that the market will continue the overall downtrend, which is my base case scenario for the last couple of weeks. As we continue to consolidate overall, I think we will eventually break out of this 100-point range, and then head towards one of the targets mentioned previously.
Keep in mind that the Chinese economy has slowed down a bit, so it certainly makes sense that the Australian dollar will move right along with it. If we were to break down below the 0.73 level, that would be a move in the US dollar overall, not just here. Pay close attention to the US Dollar Index, because while it certainly looks as if it is ready to break out, there are some noisy bits just above. At this point, I still suspect that fading short-term rallies is the way to go.
