There are plenty of ways to look at the AUD/USD chart and many point to further declines. The thing is, the risk/reward is skewed to the upside because of the potential for a squeeze. The market is betting heavily against the Australian dollar and a sudden rise might quickly start to look something like the euro on July 11.

Today, AUD/USD punched through some stops below 0.9080 but scrambled back to its feet and is at 0.9110. If AUD/USD can turn higher tomorrow in the day ahead, that would be a healthy 38.2% correction after a five-day rally.

AUD/USD correction?

The calendar is light in the day ahead so the market will likely continue to look to China where the dark clouds are lightening, especially if you look at a chart of the Shanghai Composite index.

Shanghai composite index Aug 13 2013

I remain cautiously optimistic on AUD/USD in the coming days but it’s a delicate theory, especially with the US dollar showing a pulse today.