For now, I am going to drop the discussion regarding the EURUSD for now (though I could cover the finer points of what will determine direction, but that will be quite a long post). What I will do for now is quickly cover the finer points of what could be happening with the AUDUSD (the Aussie Dollar, U.S. Dollar pair). For that, let’s start with the daily chart. This is done by request (and I am interested in trading this pair myself.
The break of 1.02322 was significant last week, and led to what has (as of just after the open, a test of 1.051, and what I eventually think will be a retest of 1.05453. The 127.2% extemsion of the February high and the recently broken April 2012 low would project a target of 1.00596. As one can see from the long wicks on those candles, it would not be impossible for that retest, and even a retest of 1.00455. Should there eventually be pressure because of a “stronger” (tongue in cheek) U.S. Dollar in what would seem to be a logical reaction to the winning parties’ elections in France and Greece (both of whom want to fiscal restraint and higher taxes), one would expect the possibility of a retest and break of parity back to 0.9841. That target would equate to AB=CD price symmetry from the first move down from February 2012 to April 2012.
I think the most likely scenario at this point is the retest of the 1.00596 area. Why? Because there will likely be some negotiation with regard to what looks like a total repudiation of fiscal austerity. Where this breaks down, of course, is that, at least in the Eurozone, there are fewer and fewer options available to the ECB to manage such a mess.
Let’s for now stick with the forecast that we retest 1.00596, and let the rest work its way out. There are also specific tax issues (mining and energy taxes for now) in Australia to deal with, which could hurt commodity production, but the bigger issues are abroad, and for the very short term, the major emphasis will be on the so-called stronger U.S. dollar to pressure world currencies. Hoe long that is going to last is anyone’s guess. We are watching the slow dismantling of order in the currency markets, and no one has the currency “Richter Scale” or earthquake monitor to measure the shock or determine the fault lines. That means currency traders will get out their forked sticks (and forked tongues in some cases) to measure assumed direction and magnitude.
Anything can (and probably WILL) happen. I am still trading large hourly swings, so as to avoid 24/7 sitting at the monitors. More soon on this pair as things develop.
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