How the Aussie Dollar is Running Out of Friends, Fast.
I have devoted a lot of time recently pointing out that I thought the Australian dollar was about to fall.
Unlike the mainstream media that waits until something has fallen before writing articles about it, I warned on the 25th of April, when the Australian dollar was trading at US$1.03, that:
‘The next stop for the Aussie is of course the last major line of support around US$1.015-1.02. I would expect to see some buying around that level but I don’t think it will be enough to turn things around. If that last line of support gives way then you could expect to see the Aussie heading towards parity in short order.
‘From there the Aussie would be testing parity as well as the lower edge of the symmetrical triangle. If that can’t hold the Australian dollar would run out of friends pretty fast.
Fast forward three weeks and the Aussie is indeed running out of friends fast. Last week I said that:
‘I think we will see the US$1.015 level give way within the next week or so… From where I sit there is a set of dominoes piled up from here to around US$0.98 and it could happen quicker than most expect once it gets going.‘
In the event the Australian dollar broke beneath the US$1.015 level on that very day and we have seen the sharp sell-off that I was predicting unfold over the past week…
In the very short term the currency is starting to look a little overstretched on the downside. We can expect to see some sort of bounce from this region, but it’s by no means certain.
As I said last week (you can find last week’s offering here) the very long term charts are starting to look pretty bearish. The major line in the sand for our currency is the 2008 high of US0.985.
In the short term I would expect to see that level hold, or if it doesn’t hold the currency won’t spend too long beneath it before having a short squeeze higher.
The US$1.015 level should prove to be stiff resistance on the way back up and I don’t think the Aussie dollar will manage to bust back above that level from here.
Looking at the longer term picture I remain of the view that the US$0.985 level will ultimately fail and we’ll see the Aussie dollar plummet to the low 90?s and perhaps even lower.
Editor, Slipstream Trader
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