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Christopher Lewis
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AUD/USD

The Australian dollar had a rough ride during the trading session on Thursday, piercing down below the 0.76 handle, only to turn around and recover midday. The question now is whether or not this is a real recovery, or is it simply a bounce before a continued drop? If you look at the longer-term timeframe, we ended up forming a massive shooting star during the month of February, and that of course is a very negative sign. I think a lot of this probably comes down the bond yields, and it is worth noting that the 10 year note dropped five basis points of yield during the session, so that of course works against the US dollar and could have been a major culprit for the recovery of the Aussie against it.

AUD/USD Video 02.04.21

All of this being said, the US dollar has been on a tear lately, and it looks like there is no end of that as yields rise. However, one would have to think there is a huge barrier at the 2% level in the 10 year yield, so how much further the US dollar can go might be an open question but clearly it has been a strong performer this year, and therefore I still believe we have further to go to the downside. Breaking down below the 0.76 level opened up the possibility of a move to the 0.72 handle, possibly even lower than that. While that does sound extreme, when you look at the longer-term trade, is simply a pullback in what has been a strong uptrend.

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