Australian dollar looking to form base

Alan Penny

21 February 2019

3 min read


AUDUSDLooking at the longer-term charts, the Australian dollar continues to try to form a bit of a base, as we have seen massive volatility over the last several weeks. With that being the case it’s likely that the choppiness will continue, but when looking at the longer-term charts it’s easy to see a significant amount of support just below.

Thursday early action – another buying opportunity?

During the early action on Thursday, the Australian dollar spiked initially but then rolled over to reach down towards the 0.7120 level. This is an area that should continue to be important, as the 0.70 level has been a major support level on the monthly charts. This major support level extends down to the 0.68 level and goes back decades. With that in mind, and the fact that you can see it on the monthly chart, it makes sense that there will be a lot of interest in the Australian dollar at this point.

Another thing to keep in mind is that the Australian dollar does typically move with gold, which of course is getting a boost as of late due to the central bank loosening of interest rates. If that continues, and more importantly the Federal Reserve remains a bit dovish, it’s likely that we should see the Aussie continue to benefit from the soft US dollar.

Don’t forget US/China

Presently, the Australian dollar is best thought of as a proxy for China as well. Ultimately, this market tends to move with the fortunes of the Chinese, which have been rather poor as of late. However, if we can get some type of solution to the US/China trade talks, it’s very likely that we will see the Australian dollar be one of the biggest beneficiaries as money goes looking towards “riskier” assets, and of course flowing into Asia. Remember, Australia is essentially the supplier of commodities for the Chinese, and as a result have a high correlation to that country’s economy. Looking at the trade talks, it will take very little in the way of good news to get people excited again, and that should dictate higher levels.

Major hurdle above

The 200 day EMA is sitting at the 0.7250 level, an area that of course will cause a certain amount of interest by the sellers. We have been in a long-term downtrend, and quite often it takes a significant amount of effort to be turned around. Ultimately, it does look as if the market is going to respect the support below, but obviously it takes a lot of effort to break through major areas. We have seen the 0.7250 level offer massive resistance previously, and a break above there not only breaks the resistance barrier itself, but the psychological strength of moving above the 200 day EMA can’t be dismissed. A lot of longer-term traders will be looking at that as a sign that we are turning around completely.

Upon the turnaround, it’s very likely that we will see traders jump into this market and really started to push things higher. With the combination of gold and US/China talks coming into play, it’s very likely that the market has more of a risk to the upside then down currently.

Written By
Alan Penny

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