The Australian dollar is still showing a good performance against the US dollar but is trailing the Euro.
“The Aussie dollar needs to trade above .7962 against the greenback if it is going to kick back toward recent highs,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader in Sydney.
“It (Aussie dollar) also needs to kick even higher as it is trailing the Euro at this stage,” he added.
According to McKenna, the Euro got some boost on the back of comments from Mario Draghi, European Central Bank (ECB) president at his speech at Jackson Hole over the weekend.
“Traders grabbed the fact that Mario Draghi didn’t try to jawbone the single currency. That was all the bulls needed and the Euro surged on Friday night to the highest level since January 2015,” McKenna said.
He added, “That fall lifted EURUSD to 1.0946 as traders take the path of least resistance higher.”
“I think the market has overreacted to Mario Draghi’s sticking to the script and not jawboning the Euro,” McKenna said.
“That Mario Draghi made the same mistake earlier this year in framing his speech in the manner he did and thus unleashing a Euro’s surge means he owns this rally.”
In the meantime, the US dollar continued to languish against other currencies.
According to McKenna, “If the next leg of the US dollar bear market has now begun, there is every chance that the Aussie dollar is going to head back up and to the recent highs around 0.8040/60,”
“And there is every chance if this level breaks it heads toward 0.8240,” he said.
In the meantime, traders will be watching the recent high at 0.7962 as a key level that needs to break.
A test of that level seems likely in trade today given that for many days support has come into the market each time the Aussie dollar tested the upslope of the trend line from the start of this rally below 74 cents, McKenna noted.
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