Australian dollar hits brick wall

Kate Leaman Kate Leaman

10 June 2019

The Australian dollar spent most of last week slamming against the 0.70 level. That is an area that has been important for some time, and the fact that we couldn’t break through there on a daily close last week was a bit telling. Since then, we have kicked off the week selling off this pair yet again, reaching down to the short-term support level. After all, the market has been trying to consolidate its way through the upside and massive resistance. However, we haven’t got anywhere close to doing so.

Massive resistance

The 0.70 level has shown itself to be massive resistance more than once, and the fact that we have fallen from that level to kick off the week shows just how difficult it’s going to be to break above there. Beyond that, we are truly broken out until we get above the 0.7060 level, something we haven’t even come close to yet. This makes sense, because quite frankly the Australian dollar is highly levered to the Chinese economy, and of course the US/Chinese trade talks continue to drag on or probably more appropriately put – continue to go nowhere.

It’s not until we break above the 0.7060 level that I feel comfortable buying the Australian dollar, but it does look as if we are at least trying to put up some type of fight down here, and that of course could have been due to the Federal Reserve softening its monetary policy. So now the question becomes whether or not it’s the US/China trade situation, global growth, or the Federal Reserve that’s most important? The answer: it’s going to depend on the day.

aud/usd chart

AUD/USD Chart

The outlook

While we have not been able to break out, the reality is we haven’t exactly broken down either. So the outlook for the pair is going to be that it should continue to be very choppy. The good news of course is that as long as we stay choppy it means that we are breaking down. The Australian dollar is highly sensitive to risk appetite and as long as it doesn’t melt down, there’s a good chance that the rest of the markets aren’t melding down. The choppiness could be the beginning of the market trying to form a bit of a floor, which I do think could possibly be the case.

Levels to watch

There are handful of levels to watch from what I see. The most obvious would be the resistance barrier extending from 0.70 to the 0.7060 level. Underneath, the 0.69 level as support, and the 0.68 level is the “floor.” So at this point, it’s very likely that we pull back a bit from here only to see buyers jumping in to pick up value. What does that tell you? It tells you that we are trying to find some type of floor, and with the Federal Reserve softening its stance we may be looking to turn things around based upon greenback softness. If we get any good news whatsoever out of the global growth story, the Aussie could turn back around. If the Americans and the Chinese can finally come to terms, this will be the first place you want to put money to work.

 


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