It's shaping up to be a pretty pivotal week for the Australian dollar as it sits at a major crossroad on the weekly chart and faces a heavy week of local, US and Chinese economic data.
The weekly chart of the Australian dollar below shows that it finds itself right below major resistance around the $US1.06 level. On more than four occasions the market has tried unsuccessfully to move through this level and last week's attempt looks to have run into the same roadblock.
Source: IG Markets
Four weeks ago, the dollar broke down below the medium term uptrend line. It formed a low, labelled 'Support 1', before rallying to test the major resistance zone as well as the medium term uptrend, which is now acting as resistance.
On the daily time frame, the dollar staged a significant technical reversal right at the resistance zone which leads me to believe that we’ve once again seen the emergence of significant selling pressure around the $US1.06 level.
The Australian dollar has traded in a pretty tight range since mid-2012, which indicates that neither the bulls nor bears are in complete control. So while it looks like there could be some selling pressure in the short-term, it’s very difficult to determine whether or not this will manifest itself into more of a meaningful pullback.
If we did see the selling pick up, then we would expect to see the buyers re-join the party around the Support 1 level. If that failed, it could open the way for a move lower towards Support 2.
As you can see, I think the risk is definitely to the downside for the Australian dollar. From a contrarian point of view, I just can’t see who is left to buy the dollar. If participants wanted to be long on the currency then they would have bought it ages ago. On the flipside, there seems to be plenty of potential sellers just waiting for the time to book profits or short sell the Australian dollar.
MARKETS SPECTATOR: D-day for the dollar
The Australian dollar seems unable to break through the major resistance level of about $US1.06. It looks set for a fifth straight failure and then the question is: how far will it fall?
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