The AUD/USD pair fell hard on Tuesday after a BHP Billiton exec was quoted as saying Chinese demand for hard commodities out of Australia was weakening. The Chinese have been the lone hope for a lot of the bulls out there, so the reaction isn’t a huge surprise. However, we are looking at a drop from 12% growth to “only” 7. This is more than likely going to be seen as an overreaction by the market as the Aussie still has the same fundamental strengths going forward as it had 24 hours earlier.
The fall was from a resistance area though, and this would of course worry some technicians. The 1.0650 area was the bottom of a large consolidation range that the market fell from a few weeks ago. However, the overall trend is still intact as far as we look at it until the 1.04 level gives way. At this point in time, we still think of this as a pullback in an otherwise strong market.
The 1.04 level was the site of a massive breakout as the market left the confines of an ascending triangle. The level should be tested for support, and in fact it was just a few sessions ago. The market will absolutely have to be able to find this level as a floor if the upward momentum is to continue. In the meantime, we are waiting to see if we get that test and strength from the level.
The triangle mentioned above suggested a move up to the 1.12 level, and at this point in time we still think that the market just might find that level going forward. The 38.2% Fibonacci level is right there as well, and this could also bring in some buyers as the level is so enticing. The 50% Fibonacci is below, but a “giving” of 1.04 would be worrisome at this point, and we would be careful about buying down there. Going forward, we prefer to go with the trend, and will buy the next supportive candle as the trend starts to reassert itself.
Written by FX Empire