In general, I think this is a market that will continue to be more of a range-bound type of situation.
- The AUD/USD currency pair fell a bit Wednesday to break down below the lows of the previous candle, showing that perhaps there is still plenty of downward pressure.
- However, we have turned around in the middle of the day and have seen the market try to recover completely.
- The 50-day EMA sits just above, and of course, causes a certain amount of noise.
Keep an Eye on Commodity Markets and 10-Year Yield
The candlestick for the day is forming a bit of a hammer, and that is a bullish sign, but we are simply testing the bottom of the recent consolidation area. The market will almost certainly continue to come back into the picture and look at this through the prism of risk appetite and consolidation at the same time. After all, the Australian dollar is considered to be highly levered to commodity markets, which are highly levered to world growth. If the economy starts to enter a very rough patch, it does make a certain amount of sense that the Australian dollar could suffer as a result. Alternatively, if we start to see growth return and perhaps even stimulus, that will help the Aussie as well.
Looking at the 10-year yield helps because it tells you where the US dollar may or may not end up, which is something worth paying close attention to. Another thing worth keeping in the back of your head is the fact that the jobs report comes out on Friday, so it’s more likely than not we go sideways over the next couple of sessions until we get that vital piece of information. The fact that we could not take off in one direction or the other should not be a huge surprise at this point. That being said, I anticipate that we will grind back and forth and essentially chop it up in this tight range. I do favor the downside overall, but I also recognize that we need a catalyst to get moving.
In general, I think this is a market that will continue to be more of a range-bound type of situation, so if you are going to trade it, you need to approach it from the idea of a range-bound short-term setup until we get a break above the 0.750 level or breakdown below the lows of the session on Wednesday.
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