Originally published by AxiTrader
Break or hold?
That's the big question forex traders will be asking themselves as we kick off the new trading week today with the US dollar looking the strongest its been in weeks. But it's still inside the ranges we have seen for some time. And thus so are the major pairs.
That includes the Australian dollar which, having broken above 78 cents last week is now back near where the rally started just above the 0.7640/50 region. It's at 0.7669 as I write.
That the Aussie is lower despite the relatively solid performance of commodities over the past couple of week's is simply a testament to two things. First, the US dollar is still the dominant driver of the big currency rates at the moment with the ebb and flow of sentiment toward it moving the Aussie - and others - up and down.
The second point is that by many measures of "fair value" - itself a coincident measurement driven by many factors - the Aussie was stretched before the commodity rally and is now simply back into the "fair" range of value.
That implies that commodities will need to continue to rise to support the Aussie going forward given where risk appetite and bond spreads are at the moment.
But it's the US dollar which is going to be a big driver. And that brings me back to the question I asked at the start o this piece. Break or hold?
In the case of euro it's 1.2150, for USD/JPY it's 108.50, for the kiwi it's 0.7140. If one or all of these levels give way then the Aussie is likely to be sliding through 0.7650 and testing the trendline support from the 2016 low which comes in around 0.7615 this morning.
Should that level give way then the Aussie could be on the way to 0.7475. But that support needs to break first. And this is one heck of a solid - and thus important - trendline.
Shorter term the 0.7650 region is support. While it holds a consolidation is on hand. Should it break then a Fibo extension would suggest 0.7590. Resistance is at 0.7710/15.
Have a great day's trading.