The Australian dollar has rallied during early trading on Tuesday to reach the 50 Day EMA but has also given back quite a bit of the gains. Because of this, the market looks less likely than ever to see any real follow-through. However, we also have the Jackson Hole Symposium going on this week, and traders will be watching to see what central bankers have to say. After all, interest rate differentials have been a major driver of markets as there is a lot of inflation globally.

The AUD/USD will not be immune to what the Federal Reserve does, so if the United States central bank continues to be aggressive, then it’s more likely than not that the US dollar will continue to pick up momentum against the Aussie. Furthermore, the Australian dollars are highly leveraged to China, so you have that problem as well. The Chinese economy is less than enthusiastic at the moment, especially as there is a major housing crisis just waiting to flare up.

Looking for a bigger move

If the market were to break above the 50-Day EMA, it will open up the possibility of a move to the 0.70 level, and then possibly even the 200-Day EMA which this just above the 0.71 level. The 0.71 level is where the 200-Day EMA is currently at, so therefore a lot of trend followers will be paying close attention to that region. On the other hand, if we break down below the bottom of the last couple of candlesticks, it’s likely that the market could drop down to the 0.68 level, perhaps down to the 0.67 level. The 0.67 level is an area that we had bounced from rather significantly, and therefore I think there would be a certain amount of “market memory” forming there. Nonetheless, this is a market that had bounced rather hard, and now looks as if it is trying to roll over for a bigger move to the downside.

At this point, it’s probably more about the US dollar than anything else.

• Pay close attention to those interest rates and what they are doing in the United States.
• If they continue to climb, especially in the face of a hawkish Federal Reserve, there’s no real reason to think that the Aussie is going to strengthen for anything sustainable.

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As things stand right now, there’s almost no real reason to suspect that the stock market will go higher for a bigger move.

The S&P 500 went back and forth on Thursday as we continue to hear a lot of noise in this general vicinity. I do not anticipate that this is going to get any better over the next couple of days, because we do have the jobs number coming out on Friday, which in and of itself will cause quite a bit of noise. Because of this, I would not ask too much of the market, but a short-term trade could be setting up.

Looking at the candlestick from the Tuesday session, we have formed a little bit of a shooting star, just as the candlestick from Wednesday is a little bit of a hammer. Typically, when we see a move out of this type of setup, you get a little bit of pop higher or some type of selloff. That being said, I think it is likely that at the end of the day on Thursday, the market will slow back down until 8:30 AM EST when the jobs number comes out in the United States. At that point, I would anticipate a lot of noisy behavior, and of course, the S&P 500 futures will be the epicenter of a lot of trading.

It is worth noting that we pulled back from the 50-day EMA during the trading session on Tuesday, but now that we have pulled back from there, it certainly shows that there is a bit of resistance. Even if we break above the top of the candlestick, it’s very likely that the 4300 level is your next major area of selling pressure. It is at the 4300 level and the 200-day EMA convergence that we would see a significant shift in the trend.

As things stand right now, there’s almost no real reason to suspect that the stock market will go higher for a bigger move. The conditions for a rally simply are not there, and I think it’s only a matter of time before more concern comes back into the market. Pay attention to the bond market, because it can give you a little bit of a “heads up” as to where we’re going. The market will be interesting to pay close attention to at the end of the day on Friday, because where traders park their money heading into the weekend tells you quite a bit.