Australian Dollar Gives Back Gains

Anthony Gallagher
Anthony Gallagher

14 October 2019

Australian flag

  • AUD/USD back to “fair value”
  • 50-day EMA offers resistance
  • Chinese want to talk more before signing

The Australian dollar initially tried to rally to kick off the week on Monday but then rolled over as we approached the highs from the Friday candlestick. The short-lived celebration in Asia rolled over and sold off as the Chinese started to speak of wanting to talk more before signing “phase 1” of the deal. In other words, it’s very unlikely to be a scenario where the Americans and the Chinese simply come together with some type of trade deal. In fact, it doesn’t look like much was accomplished at all during the meetings in Washington, D.C.

Downtrend consolidated 

Looking at the Australian dollar, you can see we have been in a downtrend for some time. However, over the last couple of months, the market has somewhat consolidated, so the question now is whether or not it is trying to form some type of bottoming pattern, or whether it is simply chopping around, trying to pick up enough momentum to break down significantly. Obviously, the 0.6650 level has offered massive support, and a break down below there would open up the “trapdoor lower” for the trend overall.

The 50-day EMA has offered resistance during the last couple of sessions and has been relatively reliable for some time. The fact that the market is hanging around the 0.6750 level suggests that nothing has changed either, as the market has bounced back and forth from this level repeatedly during this consolidation phase.

More of the same trends showing

It’s obvious that the market is probably gearing up to do more of the same that we have seen for quite some time, as we have been trading on headlines and tweets involving the Chinese trade situation for months. Now that the Chinese have pulled back a bit, it suggests that the market will simply bounce around based on the next headline to come out.

Short-term trading will probably continue to be the best way to approach the Australian dollar

In other words, we will probably keep bouncing between the 0.68 level and the 0.67 level overall, with some slight outliers. Short-term trading will likely continue to be the best way to approach the Australian dollar, perhaps with more of a negative bias than anything else.

Until the Americans and the Chinese can come together with some type of longer-term agreement, the Australian dollar will continue to be sold. After all, the Australian economy is highly influenced by Chinese economics, as Australia provides China with quite a few raw materials for construction and manufacturing. As long as that’s the case, the choppy conditions will make longer-term “buy-and-hold” or “sell-and-forget” strategies all but impossible.

Longer-term traders have simply been sitting sideways, waiting for some type of momentum to make this an investable market. All things being equal, this market looks ready to continue experiencing more of the same of what we have been stuck in for months.

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