AUD/USD fell on Tuesday, breaking below the bottom of recent consolidation. The 1.06 level giving way was indeed interesting, but in reality the major support that should continue to see this pair higher is at the 1.04 handle.
Once the site of a massive breakout, the 1.04 level hasn’t really been retested, and this latest move could be a hint of that to come. It would make sense, as the Chinese have revised their growth downward, and the Aussies are the ones who supply the Chinese will so many of their raw materials for the massive construction and manufacturing projects.
The world is lacking yield at the moment, and as a result this pair should continue to attract traders over the long term. The yield for the Aussie dollar is the highest o fall major currencies, and because of this, the currency will continue to attract a certain amount of investors. The commodity play will continue to strengthen as well, and this always seems to help the Aussie as it is home to so many commodity companies. As long as the central banks around the world flood the markets with liquidity on the whole, traders and investors will buy “stuff”, and this often means the Aussie first.
The selling of this pair isn’t really a thought at the moment, as the trend has been very relentless in this market. The 1.04 level then becomes so much more important to us. We need to see this level hold up as support in order to go long again, and with the recent breakdown, we think this is exactly what the market is trying to find out – whether or not 1.04 is the real deal. Judging by the breakout, the odds are that it is, and as a result we are now looking at the level as the site of our next long AUD/USD position. If we get any serious signs of support – we are long at that point. If we break below the level, and close on the daily down there – we would have to reassess the pair completely.
Written by FX Empire