AUD/USD initially fell during the session on Tuesday, but found a ton of support at the 1.0475 level again in order to pop back and over the 1.05 level. It is at the 1.05 level that we had suggested a daily close would signal the next leg higher in this pair. Now that we’ve seen that’s, we believe that the 1.06 level will be targeted right away, and then perhaps the 1.08 and 1.10 levels.
This makes sense, as the gold markets look like they are trying to form some type of supportive base, and the Australian dollar typically will follow what the gold markets do. The real question is whether or not we can get above the 1.06 level, but if the Federal Reserve has an extremely dovish statement later today after the FMOC meeting; this could be the catalyst to push this market higher.
Because of this, if you are someone who is more risk averse, you may have to wait until that announcement and subsequent question and answers session with the Federal Reserve Chairman. More than likely, the markets will react to whatever Mr. Bernanke says, and as a result it should be the preeminent market moving event for the week.
There is also the possibility that the Federal Reserve Chairman will disappoint the market. If that happens, obviously we will have a pullback in such riskier currencies as the Australian dollar, and we could see a run back to the US dollar overall. However, the Federal Reserve is shown time and time again over the last couple of years that it simply does what the market wants. There’s no reason to think that this will change today, and as a result we are comfortable enough going long in this market now that we have close above the 1.05 level.
As for shorting this market is concerned, it will be difficult to do until we break through quite a bit of support all the way down to the 1.03 level. Is because of this that shorting the Australian dollar currently is an even on the radar as far as we can tell.
Written by FX Empire