Hiyo my avid readers! I got some bad news to deliver to those who are still long on the Australian dollar. It might be a better idea now if you lighten your positions or to sell them during rallies given the bearish signals that I’m seeing in its daily chart. As you can see, the AUDUSD pair has broken down from a double top formation last week. Judging by the height of the pattern, its minimum downside target would be at 0.7700. At present, the AUD/USD pair is trading just above 0.8200. That means it that the pair could still move down by at least 500 pips. Now, who wants to lose that? Nobody, right? Still, it could consolidate or even retrace for awhile given its oversold conditions. The bias, though, is already bearish since it already reversed and broke its uptrend.
Fundamentally, it looks like the Aussie’s run for the best performing currency in 2010 is already lost. Despite its significant interest rate advantage over the other currency majors, investors still dumped it for the safety of the greenback and the yen due to some major developments that stirred up some fears in the markets. Last week, concerns that the euro zone could be breaking up has caused a massive sell-off among the non-dollar currencies which includes the AUD. Japan’s less-than-stellar first quarter GDP score has also jolted the market’s confidence or the lack of it.
This week, the market will again focus on the developments in the euro zone, particularly in Greece. Signs that Greece’s fiscal crisis is spreading across the region and obstruct growth would surely increase the investors’ bearish sentiment. The UK, which is the euro zone’s major trading partner, is set to release its revised GDP report tomorrow (May 25). UK’s GDP economy is expected to have grown by 0.3% rather than the initial 0.2% count. A weaker than expected result will likely cause another anti-dollar sell-off.