AUD/USD Forecast for the Week of December 19, 2011

AUD/USD had a bearish week during the week as the markets continue to run from risk in general. The pair is a risk sensitive pair, and anytime there is massive concern in the markets this pair will often fall. The parity level giving way is a sign of just how many traders are concerned about global growth presently.

The Chinese economy is presently slowing down, and as it is Australia’s number one export market, it makes sense that this will hurt the Australian economy over time. The demand for the Aussie dollar will decline, and the pair should fall. However, the 0.95 to parity level looks massively supportive, so the fall won’t exactly be easy for the bears. The support actually goes all the way back down to the 0.93 level, and a break below that would be massive in its implications for a market crash in general. However, a slow grind downward could be the more likely scenario, and we think this is the case.

The upside seems to be limited by the 1.0350 area, and as a result we think this pair will be sideways with a downward bias over the next few months. The “risk off” nature of the markets isn’t very supportive to commodity currencies at the moment, and the Dollar is the currency everyone wants to won. Both of these facts are big reasons not to buy in general. We prefer to sell rallies in this pair as the highs are grinding lower, and the base looks like it is being pressed over and over. The breaking below that massive support block would more than likely signal something akin to that 2088 meltdown, and to be honest – that scenario isn’t exactly out of the question.

While the AUD/USD isn’t always going to be tradable in the near future, it will be a massive barometer on global trade in general. If this pair falls – everything else will as well. The bounces look likely to be opportunities to sell now, and this is exactly what we are doing.