The AUD/USD pair rallied after initially falling during the day on Friday. Ultimately, this essentially formed a bit of a hammer and that suggests to me that the market may bounce a bit from here. However, there are plenty of reasons to think that this market will struggle over the longer term. Any rally at this point will be a short-term rally at best, and the 0.7450 level will probably be a nice selling opportunity if we can get to that level. Alternately, if we can break down below the 0.7370 level, the market should continue to drift lower. Gold markets have not been helping much lately, so it’s not a surprise to me that the market will continue to struggle in general.
Pay attention to gold, because it is one of the biggest drivers of the Australian dollar, and there are other markets that you should be paying attention to as well. In fact, iron and copper have looked very soft lately, and that suggests that perhaps the Chinese demand will drop, and that is very negative for the Australian dollar as it tends to be a bit of a proxy as the Australian supply so much of the raw materials for the Chinese construction boom. Chinese demand dropping is probably one of the most toxic things that can happen to the Australian economy, and of course there is the specter of a potential housing bubble in Australia as well. Ultimately, I think the Australian dollar goes lower but a short-term bounce may present itself. It really comes down to how much time you have this in front of the charts. For myself, I’m just looking for an exhaustive candle above to short and then walk away and let the market do its thing.
Written by FX Empire