Last week the Aussie $ broke down from a multi-month consolidation pattern, the bottom of which was formed by line (1). After reclaiming the line earlier this week, it has once again broke below such support.
Such break-downs from consolidation patterns typically portend waterfall type price declines for the asset in question.
As an example, I’ve included an inset of the SPX on a daily basis in recent years to show where it has experienced similar such breaks. All occurred in front of material declines in the SPX.
More likely than not, this break-down in the Aussie $ is sending a big warning signal for the outlook for global growth. Additionally, it is yet another indication, in addition to the multi-decade break of resistance for the 10 Yr bond price, that the threat of deflation is picking up speed.
To the extent that the Aussie’s price action and break from its consolidation pattern resembles what has happened for the SPX in the past in front of waterfall selling one would consider the risk of declining prices for risk assets in the near-term, especially in the commodity/Asian arena, to be quite heightened.