Faces Resistance, Chinese Economy Concerns

While market conditions are likely to remain noisy, there are signs that the US dollar is gaining momentum.

The AUD/USD pair encountered resistance during Monday’s trading session as it attempted to rally. The 50-Day Exponential Moving Average posed a barrier to further gains. Compounding the issue, disappointing Chinese economic numbers overnight have raised concerns about deflation in the Chinese economy. This development has sparked worries regarding the long-term correlation between Australia and China.

• An important support level worth noting is situated at 0.66.
• A breakdown below this level could potentially drive the Australian dollar towards the 0.65 mark, an area that has previously provided a rebound.
• Further downward movement may open the door to a move down to the 0.64 level.
• This level represents the “measure move” of the breakout from the previous rectangle pattern. However, it is essential to bear in mind that the market has demonstrated increased volatility, having previously broken down to lower levels only to unexpectedly surge through the rectangle pattern and subsequently fall back to current levels.

On the other hand, should the Australian dollar reverse its course and surpass the recent candlestick highs, it could potentially trigger a move towards the 200-Day EMA, around the 0.6750 level. Subsequently, the 0.68 level could come into play. It is crucial to understand that the Australian dollar is significantly influenced not only by developments in China but also by commodity markets as a whole and overall risk appetite.

Considering the current dynamics, it appears to be more of a “fade the rally” type of market. Consequently, sellers are expected to dominate overall. However, periodic reactionary bounces from the 0.66 level may occur. In essence, the market seems to be range-bound, with downward pressure outweighing upward momentum. This perspective guides my approach to this market. While market conditions are likely to remain noisy, there are signs that the US dollar is gaining momentum.

The Australian dollar encountered resistance at the 50-Day EMA following an attempted rally. Disappointing Chinese economic numbers raised concerns about deflation in the Chinese economy, impacting the longer-term correlation between Australia and China. Support is found at the 0.66 level, with a potential move down to 0.65 and 0.64 in case of a breakdown. Conversely, surpassing recent highs opens up the possibility of a move towards the 200-Day EMA at 0.6750 and potentially the 0.68 level. The market is more inclined towards sellers, but reactionary bounces from the 0.66 level are expected. While volatility persists, signs of the US dollar gaining strength should be considered.

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