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Unless the Federal Reserve changes its tune completely next week, there will be plenty of reasons for the US dollar to strengthen.
The AUD/USD currency pair initially tried to rally Wednesday but gave up any type of momentum and ended up forming a bit of a shooting star. This is a “perfect setup”, at least in theory for sellers to jump in and start fading. The 0.69 level continues to cause quite a bit of noise, and it looks like we are going to struggle to stay above there.
With that in mind, if we can break down below the bottom of the candlestick for the trading session, it’s likely that we will drop to the 0.68 level. If we can break through there, then we can start to test the 0.6750 level, and then possibly the 0.67 level. Ultimately, the 0.67 level is an area that we need to pay close attention to because it is supported on long-term charts. Breaking through that area opens up a massive hole in the ground that the market will then fall into.
On the other hand, we could break above the top of the shooting star, which is typically a very bullish sign. I would anticipate that a move above there will then have some issues with the 50-Day EMA, and then possibly the 0.70 level above there, as it is a large, round, psychologically significant figure. In that situation, we probably have a scenario where we would continue to see a lot of noisy behavior, but perhaps more of a short covering rally. In that scenario, I believe there is a nice selling opportunity above, assuming that we get signs of exhaustion that we can jump on.
It’s not until we break above the 0.71 level that I start to consider the idea of a trend change. Yes, I know that would be a significant bounce, but we have not broken structure to the upside quite yet, despite the fact that the previous three candlesticks were all rather strong looking. Because of that, I believe it is more likely than not going to continue to be a market that is very noisy, but I still believe that the US dollar has the upper hand longer term. Unless the Federal Reserve changes its tune completely next week, there will be plenty of reasons for the US dollar to strengthen.
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