The Friday session featured the jobs report out the United States, which showed a gain of 943,000 jobs for the month of July. Because of this, interest rates in America started to rise as traders began to bet on the Federal Reserve trying to tighten monetary policy. That being said, the market is going to continue to see the overall downtrend play itself out against the Aussie, as we are testing the 0.7350 level.
Recently, we have been forming a small ascending channel, but you can also make an argument for something akin to sideways volatility after a major drop. When you look at the longer-term charts it is not a real stretch to suggest that this pair could go to the 0.70 level. The fact that it is August probably does not help the situation either, as it does tend to be a very quiet month in general. Traders are starting to pay close attention to the idea of inflation and rising rates, and while you would think that would help the Australian dollar, at the same time we are having major issues in China which works against Chinese exports.
To the upside, the 0.74 level looks to be offering significant resistance and I think that this is probably going to continue to be a “sell the rallies” type of situation. Even if we break above there, I believe that the 0.75 level is even more resistive, not only due to the psychology of that big figure but the fact that we had just formed that “death cross” sitting just above it. As long as interest rates in the United States continue to rise, it is very likely that we will see this market favor the downside, especially as Australian bonds have cratered as far as yields are concerned, and the Australian economy continues to be locked down. A lockdown of the economy is not healthy, and that will show itself in the currency market as well. Structurally speaking, there will probably be a lot of choppiness, but one would think that it is only a matter of time before we see quite a bit of downward pressure. It is not until we get a daily close above the 0.75 level that I would be a buyer, no matter how unlikely that move would be.
