The AUD/USD pair broke through in uptrend line during the session on Tuesday. It slammed into the 0.9250 handle, which of course has been supportive as well. This area could be a significant test for the sellers, but if it gives way to them, we could see a rapid depreciation of the Australian dollar. The Reserve Bank of Australia did just say that they thought economic conditions were deteriorating, which of course should put pressure on the Australian dollar in general. Adding to that is the slowing Asian economies, and you have the recipe for a fairly weak Australian dollar.
However, we feel that this market has a significant amount of support just below here, so we cannot advocate selling quite yet. Quite frankly, trend line breaks don’t always mean that the markets about to change direction, rather they can sometimes mean that we simply need to grind sideways after a significant rise in value. We have had that, so for the market to take a break in this general vicinity really wouldn’t be that surprising. In fact, it would be quite healthy for the buyers.
With all that being said, the sell signal we think is to break down below the bottom of the hammer which formed a couple of weeks ago. In other words, we need to clear the 0.92 handle by a reasonable amount, and then at that point time we think the market would continue to fall. There is a massive amount of support at the 0.90 handle, and we think that it’s probably going to be difficult to break down below that level again. Don’t get us wrong, there could always be a headline that freaks the markets out and has been selling anything risk related, but at the end of the day we still believe in the value of the Australian dollar longer-term.
If we do get a bounce from here, we could very easily ignore the trend line, and find this market consolidating between 0.950 roughly, and the 0.9450 level. With that being the case, we could have a nice range bound summer which should present decent trading opportunities.