The Australian dollar got hit rather hard during the trading session on Monday, as we continue to struggle near the 0.7275 level. This is an area that has offered significant resistance multiple days in a row, and now that we have formed this rather ugly candlestick, it does suggest that we have further to go to the downside. I had previously talked about the 0.72 level as an area of support, and that if we break down below that we could continue the overall selling pressure that we had seen for quite some time.
One has to read only so much into the recent bounce, mainly due to the fact that it was the last couple of weeks of the year, meaning there might have been a certain amount of short covering that had come into the picture. Furthermore, there was a little bit of a relief rally due to selling pressure. Nonetheless, we have had a big enough rally that those looking to get short again clearly have decided it is time. We have the jobs number on Friday, and that of course can have a certain amount of influence on the greenback itself, so keep that in the back of your head.
The 0.70 level underneath is obvious support, and the fact that we bounced from there should not be a huge surprise. At this point, you could even make an argument for a little bit of a rising wedge that we have been in, although I do not read too much into those particular patterns. As far as buying is concerned, we would need to see a complete turnaround in attitude, and we would obviously need to break above the 0.7275 handle, perhaps even the 0.73 level to be somewhat convincing. That would have to coincide with a major “risk on” type of attitude around the markets, so a lot of things would have to happen in order to make me excited about buying this pair at the moment. As far as shorting is concerned, short-term rallies that show signs of exhaustion should offer entries.
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