The Australian dollar initially rallied on Tuesday, using the 0.78 level as support. The 0.7850 level above was resistance during the previous session, but we could even make it to that level. It look very bullish initially, but then we rolled over and sliced through the 0.78 level. Now that we have broken below there, it’s likely that we will go looking towards the bottom of the support region that extends down to the 0.7750 level. This area is crucial, as it gives us an idea as to the longer-term trend of the pair, and if we were to break down below the 0.7750 level, that could unwind the long Aussie trade that has been in effect for some time. We had broken above that level, which was massively resistive, so pulling back to test that level makes quite a bit of sense.
The market should continue to be very noisy, and of course will have its usual influence from the gold futures pits, but I think the biggest component here is going to be the US dollar which continues to see a lot of bullish support. Currently, my base case scenario is that we will eventually see buyers jump back into this market, but if we were to break down below the aforementioned 0.7750 level, then I would become aggressively short as the market will probably continue to break down drastically.
On the other side of the trade, if we see the 0.7750 level show enough signs of support, the market should then bounce back towards the 0.7850 level again. If we can break above there, then the market goes to the 0.80 level yet again, an area that continues to attract a lot of attention, as it has been important going back several decades.
Written by FX Empire