Australian dollar looking for the bottom

Kate Leaman
Kate Leaman

5 August 2019

AUD coin on Australian flag

The Australian dollar has fallen a bit during the trading session on Monday, breaking down as low as the 0.6750 level before turning around a bit. That being said, it looks as if we are going to form a pseudo-supportive looking candle, but I believe it’s only a matter time before the sellers return. However, you can’t go in one direction forever when it comes to any market, so at this point I think a bounce is probably somewhat overdue.

Oversold condition

AUD/USD Chart

AUD/USD

The market is most certainly an a huge “oversold condition” and therefore I think it is only a matter of time before we get some type of bounce. That bounce could be rather significant, perhaps a couple of handles. At this point though, it doesn’t really matter as the selloff has been so strong that the bounce is necessary. After all, you can’t selloff forever.

If we do break above the top of the candle stick from both the Monday and Friday sessions, I suspect we could go as high as the 0.69 level above, which also coincides with the 50% retracement level. I have it marked on the chart with an aqua rectangle. Any sign of exhaustion near that level I would become aggressively short as we continue to see so much negativity longer term.

US/China trade relations

The United States and China trade relations continue to cause a lot of issues, so therefore it’s likely that the Australian dollar will struggle as it is so highly levered to the Chinese mainland economy. After all, there’s a lot in the way of hard commodities that come from Australia that are used in both construction and manufacturing in China. As those discussions continue to be very poor, it makes sense that the Australian dollar simply won’t instill any type of confidence.

Treasury markets

The treasury markets in the United States have continue to attract a lot of of attention, as we can see the extraordinarily low interest rates as buyers have been stepping in. This is because people are concerned about geopolitical issues and of course growth. With everything that’s going on it makes sense that we will continue to struggle to see strength in “risk on” currency such as the Aussie.

My trade going forward

The negative attitude of this market should continue to be a major factor, but you should also think of any rally at this point as potentially offering “value” in the US dollar. The US dollar is considered to be one of the “safest currency” out there so I am a seller of candlesticks that have long wicks to the upside. I become aggressively short of this market closer to the 0.69 level. If we were to break above there, then I think the next selling opportunity is closer to the black 200 day EMA. I have no interest whatsoever in trying to buy the Aussie dollar, at least not until we get some type of resolution between the Americans and the Chinese. Even with the Gold markets taking off, the Aussie can’t seem to pick up momentum here.

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