Australia rallies after CPI as expected
At this point, I still suspect that ending rallies in the short term is the way to go.
The US Consumer Price Index came out as expected on Wednesday, showing that while there is inflation, it is not accelerating. Because of this, the US dollar was sold off a bit and this manifested in the Australian dollar as well. The Australian dollar continues to view the 0.74 level above as resistance, as it has before. Additionally, the area had been support before so you would think there is a significant amount of resistance keeping the market under wraps.
If we break above the handle of 0.74 then it is very possible that we are heading towards the 0.75 level, an area which I think would be even more resilient. The 0.75 level is not only an area of resistance support, but it is also a large, round number that is psychologically significant. The 200 day EMA is also there, so I think that has a lot to do with it more likely than not offering a bit of a cap. Obviously, if we were to break through that level, it would be a big move that’s just waiting to happen.
If we break through the 0.75 level then the market may very well be heading towards the 0.76 level. At this point, we might also see a bigger push to the upside, a longer term “buy and hold” scenario. On the downside, if we fall below the 0.73 level, it is likely that the market will continue its overall downtrend, which is my baseline scenario for the past two weeks. As we continue to consolidate globally, I think we will eventually get out of that 100 point range and then head towards one of the previously mentioned goals.
Keep in mind that the Chinese economy has slowed down a bit, so it makes sense that the Australian dollar moves with it. If we were to fall below the 0.73 level it would be a move in the US dollar as a whole, not just here. Pay close attention to the US dollar index, because while it certainly looks set to burst, there are a few noisy elements just above it. At this point, I still suspect that ending rallies in the short term is the way to go.