The Australian dollar initially fell during the trading session on Friday but we continue to see a lot of noise in this pair. That makes sense as traders are trying to figure out the headlines and what kind of implication it can have to the idea of global growth and global supply chains. At this point it is a bit much to ask for traders to become overly optimistic, so the fact that the Australian dollar has not been able to rally with any significant type of strength, should not be much of a surprise at all.
Just above, the 0.70 level is massive resistance that extends all the way to the 0.71 handle. Because we are so close to that level, buying the Australian dollar is out of the question. However, if we broke above the 0.71 level then I would have to reset my thinking and start to come to grips with the idea of buying and holding Aussie dollars. I would anticipate a move to at least 0.75, and I think it is more likely we would go to the 0.80 level after that.
To the downside, if we break down below the 0.68 level, I think we will go looking towards the 0.6675 handle, an area that was resistance previously and should now be supported. Beyond that, the 200 day EMA is floating around in that area so I think it is only a matter of time before buyers would show up there. If they do not, that would be an extraordinarily negative sign and the Australian dollar would continue to fall quite drastically. Having said that, the Federal Reserve is buying everything it can, thereby trying to devalue the US dollar. If that does in fact prove successful over time, the Aussie dollar should be one of the beneficiaries, despite the fact that anything resembling the real economy does not suggest that is what should be happening. I think there is still an inordinate amount of risk out there, so I still favor fading short-term rallies in a market that is extremely sensitive to risk appetite in general. I, also, look at any rally as a gift to pick up cheap US dollars. I do not necessarily think you should go “all in” at that point, just simply that you can continue to fade rallies with reasonable size positions.