AUD/USD Forecast May 21, 2012, Technical Analysis

The AUD/USD pair fell on Friday as the “risk off” attitude continues to haunt the markets. The Aussie is suffering at the hands of the fear of European debt issues and as the risk assets around the world fall in value, there is less interest in owning the currency. The Australians export quite a large amount of raw materials to the Chinese, and it now appears that the Chinese economy is about to start slowing again. With this being the case, there will be fewer orders for copper from Beijing to Canberra. Because of this, there will be less demand for the Aussie in general.

The trading world loves the idea of the Aussie being a proxy for risk. If the global economy is doing well, there is a good chance that the Aussie dollar is going to appreciate. The opposite is true as well. When the economy is doing poorly, there is a tendency of larger firms to convert everything back into US dollars so they can either buy blue chip stocks at the NYSE and NASDAQ, or buy US Treasuries. This is the classic “safety trade”.

The candle does however look a bit like a hammer from Friday, so there is the possibility of a bounce from here. However, the trend is certainly down now. The 1.02 level above is a massive resistive level waiting to happen. The area was significant for support, and now it should turn into massive resistance. The series of candles all the way up to 1.02 features several red candles for sellers to show resistance, so it is also possible that we don’t even make back up to the 1.02 level.

The global issues should continue to hurt the Aussie overall, and even if we get more easing by central banks around the world, there is obviously a lack of excitement for it. Each round of easing by central banks offers less and less effect, so if this does come to bear, there is a real chance that this pair doesn’t rally much on that news. Because of this, we are thinking sell only. Either after rallies on signs of weakness, of a break of the lows from Friday.

AUD/USD Forecast May 21, 2012, Technical Analysis

Written by FX Empire