The Australian dollar tried to rally during most of the session on Monday, but ran into a buzz saw of resistance near the 0.7850 level, and then pulled back to test the vinyl 0.78 handle. This is a market that might be a bit difficult to deal with though, because I recognize there is a lot of support down to at least the 0.7750 level, so it’s very unlikely that the market will be a breakdown right away, but if we were to clear that level, that would of course be very negative. Pay attention to the gold markets, because they look suspicious as well, and that should continue to put bearish pressure on the Aussie. On the other side of the equation, the United States dollar is rallying due to tax cuts coming, and the potential rate hikes that we see down the road. That’s typically bad for the gold markets, which puts a negative pressure on the Aussie dollar, but with the US dollar strengthening anyway, it makes sense that we would continue to see selling pressure.
The alternate scenario of course is that we can break above the 0.7850 level, and continue to go higher. We are going to need some help to accomplish that, so I think the markets need to see some type of external catalyst. If we get it, the market could go towards the 0.79 level next, and then eventually the 0.80 level. I think that the next several sessions for the Australian dollar will be noisy to say the least, and it would not necessarily be a bad idea to stay away until clarity returns to the market once again. Right now, there simply far too many moving pieces to the puzzle, so caution is the better part of valor.
Written by FX Empire