The Australian dollar began the trading year under pressure as a steep decline in commodity prices kept the pressure on the all commodity currencies. Price tentatively respected the psychological .80 handle last Wednesday and bounced higher after making a low at .8032. With the Australian economy appearing poised to expand at a slower pace, some analysts are forecasting that the Reserve Bank of Australia may be forced to cut interest rates to support the economy.
If price does break below the .80 handle and expectations grow for a rate cut by the Bank, price may have a clear path towards the .7500 level. Last month, RBA Governor Glenn Stehpens told the The Australian Financial Review that he beleives the exchange rate should be closer to that level.
The AUD/USD 4-hour chart displays the end of the double-bottom pattern, as price was unable to close above the 161.8% Fibonacci expansion level. If we continue to see price consolidate, critical support remains the .80 handle. A break below that handle could see immediate support from the .7944 level. Only a daily close above the .8300 handle will invalidate the current bearish trend.
The trade: Sell AUD/USD at .8160 with a stop loss at .8210 and a take profit at .8060. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading