Can the Australian dollar drop further?
In our opinion this is just what might happen to the Aussie as we are entering a new phase in its downward trend after the summer lows have been breached. We would buy puts at 0.8825-30 on a daily basis, while we stay cautious about incoming data that can influence the price.
The Australian CPI data
The biggest data release for the week is the Australian CPI data that will bring us some big trading opportunities and the Chinese Manufacturing PMI released by private bank HSBC. Those will be released on Wednesday and Thursday.
What can we do now? Well our strategic lessons are here to provide you with some ideas. Today the price has consolidated for the most part of the day, finishing trading just above 0.88 at the end of London trading. Since the US market is closed it has been a slow session after that.
We don't expect much more from the current session, but Asia should push back with more liquid flows and trigger some new moves across the forex market. Whether or not we will get our level to start playing at it is up to the market players, however we can not recommend to buy puts before we see a test of the 0.8825-30 area.
Turning our attention to the broad market analysis we can figure out that the next obvious support to the downside is at Friday's daily lows at 0.8756. Most likely we will manage to see a substantial drop if that level falls and volatility comes back to the market.
The key here is that the Australian dollar has not been trading so low since August 2010. We are firm believers that the Australian currency has seen its best days for a while and the dependency on the Chinese economy will play a crucial part in the substantial decline that follows.
Stay tuned to the comments section below as we continue exploring the opportunities that this pair offers to the market players.