The Australian dollar has long been known as a “risk on” type of currency, so it always makes quite a bit of sense to pay attention to it. Over the last couple of months, the Aussie has been trading between the 0.75 and the 0.77 levels against the US dollar. Ultimately, both February and March have formed shooting stars, which does suggest that there is significant bearish pressure just above.
As I write this, it looks as if the Aussie is going to challenge the 0.76 handle, and you could even make an argument for a little bit of a head and shoulders pattern on the daily chart as being kicked off to the downside. If that is going to be the case, it suggests that we are going to reach towards the 0.71 handle, based upon “the measured move” of the pattern.
Yields in America continue to rise, and I do think that is starting to wear upon some of the commodity currencies. This is a little bit counterintuitive due to the fact that almost everybody in the world is bullish on commodities and risk appetite in general. After all, the narrative is all about the “reopening trade”, and therefore markets may have gotten shifted to foreign one direction. The question is what happens next?
At this point, I would suggest that the Australian dollar has more of a risk of falling then it does rising. If you look at the monthly chart, you can see clearly that the area between the 0.80 level and the 0.81 level is massive resistance. If we were to break above there, then it becomes more of a “buy-and-hold” type of scenario that extends to the 0.88 handle at the least. However, breaking down below the last couple of candlesticks that we have made on the monthly chart opens up a move to at least the 0.71 handle, perhaps even lower than that. While that does sound extreme, the reality is that would simply be a correction and what has been an extraordinarily huge move to the upside.
I have started to scale into a small position short of this market, and will add to it if the market moves in my favor. If it does not, I have not risked much, and had an asymmetric trade that did not work out. That is fine, because I would be very aggressive on a breakout above the 0.81 handle. Currently though, it is worth noting that the Australian dollar simply does not seem able to hang on to gains.