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The AUD/USD pair fell during the session on Monday, even getting below the 1.05 level. We are currently at the top of the market range, and it should be noted that the shooting star that formed on Friday was hitting the bottom of the uptrend line that has supported prices before. Because of this, it looks like the Australian dollar could be suffering a bit.
One of the biggest issues that Australia will face in the near-term is whether or not the Chinese can stimulate their economy. Simply put, Australia is the general store of Asia, and as long as China is humming along, the Australians will do quite well. However, we haven't seen that lately and it appears that the Chinese economy is most certainly slowing down.
China is currently being held hostage by Europe in the United States. By saying this, we mean that the biggest customers of the Chinese are currently in a bit of economic trouble. Most people don't understand this, but Europe is actually China's largest market, not the United States. With the troubles in Europe, it's hard to believe that production will continue in China at the pace that we've seen over the last several years. Because of this, the Australians may be selling less copper and gold to the Chinese.
However, we are most obviously in an uptrend and any move lower will be a bit of a challenge. We think that a break above the Friday highs would be a massively bullish sign, and would be buying the Australian dollar and over fist at that point. However, if we continue lower by breaking the Monday lows, we would consider throwing a small short position out there and aiming for the 1.03 handle. In the long run, it will be interesting once this pair as it will probably be one of the main focuses of the Forex world. However, in the short-term we expect a lot of volatility in this particular pair as quantitative easing should be pushing it, but China may be pushing it down. Be aware the fact that the volatility will be high, and be prepared to put small stops on in order to protect yourself.