Continues to See a lot of Volatility

The Australian dollar has rallied during early trading on Tuesday to reach the 50 Day EMA but has also given back quite a bit of the gains. Because of this, the market looks less likely than ever to see any real follow-through. However, we also have the Jackson Hole Symposium going on this week, and traders will be watching to see what central bankers have to say. After all, interest rate differentials have been a major driver of markets as there is a lot of inflation globally.

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The AUD/USD will not be immune to what the Federal Reserve does, so if the United States central bank continues to be aggressive, then it’s more likely than not that the US dollar will continue to pick up momentum against the Aussie. Furthermore, the Australian dollars are highly leveraged to China, so you have that problem as well. The Chinese economy is less than enthusiastic at the moment, especially as there is a major housing crisis just waiting to flare up.

Looking for a bigger move

If the market were to break above the 50-Day EMA, it will open up the possibility of a move to the 0.70 level, and then possibly even the 200-Day EMA which this just above the 0.71 level. The 0.71 level is where the 200-Day EMA is currently at, so therefore a lot of trend followers will be paying close attention to that region. On the other hand, if we break down below the bottom of the last couple of candlesticks, it’s likely that the market could drop down to the 0.68 level, perhaps down to the 0.67 level. The 0.67 level is an area that we had bounced from rather significantly, and therefore I think there would be a certain amount of “market memory” forming there. Nonetheless, this is a market that had bounced rather hard, and now looks as if it is trying to roll over for a bigger move to the downside.

At this point, it’s probably more about the US dollar than anything else.

• Pay close attention to those interest rates and what they are doing in the United States.
• If they continue to climb, especially in the face of a hawkish Federal Reserve, there’s no real reason to think that the Aussie is going to strengthen for anything sustainable.

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