The AUD/USD pair fell during the session on Monday, but did bounce in order to get back some of its losses. The candle for the day formed a pseudo-hammer, and is based around the 1.0250 level. There is a certain amount of support just below, and we think that we could possibly see a bounce at this point in time. However, if we manage to break the bottom of the Monday lows this would be a very bearish sign. In fact, if that happens we expect to see parity and relatively short order.
The real question is not what Australia is doing, rather what is China doing? If the Chinese move to stimulate their economy, this should be fairly good for the Australian dollar as the Chinese will certainly start buying more raw materials from Australia. However, if the Chinese economy appears to be weakening too much, this could put a real beating on the Australian dollar.
We actually prefer the downside to this trade at the moment, but have to admit that if we manage to break above the highs from the Friday session, we would have to very seriously consider going long as this would just simply be another bounce in this pair. We did break an up trending trend line a few sessions ago, and that is not forgotten. Quite frankly, we think that if you go along of this pair even with the signal mentioned above, more than likely it will be a short-term trade.
We do believe that the Australian dollar gets hit before it’s all said and done and does well below parity. However, there are going to be fits of hope and enthusiasm for risk assets around the world, and as such this pair will bounce quite a bit. The pair does tend to be very volatile over time, and as such we prefer to see obvious setups in an environment like this as opposed to doing a lot of technical analysis. This is why we prefer the downside at the moment, as a breaking of the bottom of the hammer is a very bad sign. As for the bounce, it could calm but it more than likely will face certain risk headlines out there that could make the rally a bit erratic.
Written by FX Empire