Australian Dollar – Breaking down

Looking on a longer term chart of the Australian Dollar versus American Dollar, one thing is certain, there is a big downtrend going on. A couple months ago, after the 18th of March when the Fed finally dropped the word ‘patient’, there was no one left to buy the dollar, so a normal correction occurred, pushing this pair (and all the other USD pairs) back to value. I define value by using three 34 period EMAs. As for supports, the obvious number is 0.70, which has been an important level in the past probably due to its psychological meaning. The momentum is clearly pushing this pair down.

Now this is where it gets interesting, on the daily chart. It all started with a histogram divergence and a false breakout in mid May (divergence outlined on chart). Keep in mind that this pattern occurred while the weekly chart was standing at value (34 EMAs). Since then, with a few exceptions, the Australian dollar lost its value constantly. On Friday, a major break happened below the neckline of the head and shoulders pattern and after closing the gap this Monday, the downward pressure is back on. Considering this strong break on the daily chart, I would look for 0.70 and I don’t expect any major bounces till we go there.

In the end, I want to say a few words about the fundamentals of this pair. On one hand, we have the Fed, which is heading for the first rate hike in many years. Some say September, some say December, and some even say 2016. Well, in the end, the Fed is going to hike and the Royal Bank of Australia is probably going to cut rates again, considering that for months its Governor keeps saying that he desires a lower AUD. This short summary points to a lower rate for AUDUSD, and so do the charts!