The Australian dollar fluctuated on Monday as we are still looking for some type of clarity. The Australian dollar has pulled back to an area that had been important in the past, with the 0.74 level offering resistance, with the 0.73 level offering quite a bit of support. This is an area that I think will give us an idea as to where we go over the next several weeks.
If we were to break down below the 0.73 level, that would open up the possibility of a move going lower, perhaps reaching towards the 0.71 handle. With this being the case, the market is likely to accelerate to the downside if we do get that breakdown, because it would be a continuation of the overall negative attitude. On the other hand, if we break above the 0.74 handle, then the 200-day EMA comes into the picture and offers resistance. Even if we do break higher, we need to get above that 0.75 level in order to show some type of confident move that we can follow with any size.
Keep in mind that this pair is highly sensitive to risk appetite, so you need to understand what is going on around the markets in general. The Australian dollar is sensitive to the Chinese mainland as well, as the Australians send most of their commodities to that country in order to provide metal for construction, and of course all of the manufacturing that goes on in that country. With this, a lot of the commodity markets are also very interesting as far as its correlation, so all of that ties together quite nicely. I suspect that what we are looking at is a scenario in which we are trying to figure out where to go next, because we have formed a bit of a bullish flag. I think that could kick off buying, but at the same time we have seen a sharp pullback that built that flag. One thing is for sure:I think you need to be very cautious about position size, especially since we are still stuck in the same 100 points that we have been in over the last four trading sessions.
