In times like this you can make a lot of money, but you can lose it just as quickly.
The Australian dollar rallied on Monday to reach the 0.74 level yet again. At this point, the Australian dollar is bucking the trend of risk appetite as it does seem to be a little sluggish longer term, but you should also keep in mind that the Aussie dollar is highly correlated to the commodity markets. The market will continue to benefit from the higher commodity prices, but whether or not it can continue is a completely different question.
Breaking down below the 0.7350 level could open up the possibility of a move much lower, but right now we need to pay close attention to risk appetite and commodity markets. Keep in mind that both will be moving this market, and while I do like the US dollar in general, maybe not so much against the Australian dollar. If we were to break above the 0.74 handle significantly, then we could go looking towards the 0.75 handle. That is an area where I would expect to see a lot of resistance. In fact, if we can break above there then it could change the overall trend.
Keep in mind that the 200-day EMA is sitting just below the 0.73 handle, so breaking that would probably cause some type of technical weakness. More likely than not, we are going to be looking at a situation where buyers continue to look towards dips in order to get a little bit of value. That being said, keep your position size relatively small, due to the fact that the volatility is probably going to get worse before it gets better.
I think you will continue to see a lot of noise out there, and I just do not see how that changes anytime soon. I anticipate that the attitude of the markets will continue to be violent and both directions, and as a result, it is more likely than not going to continue to be very dangerous. Remember, in times like this you can make a lot of money, but you can lose it just as quickly. The Australian dollar will continue to outperform overall, as long as gold and other hard commodities do the same. You need to keep an eye all of these markets at the same time in order to trade this market.
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