The AUD/USD pair fell during the session on Wednesday, but bounced significantly from the 1.0525 area in order to form a hammer for the second day in a row. This market looks like it wants to breakout above the 1.06 level, and this of course would be massively bullish and a signal for another leg higher. We think that a move above the 1.06 level would be massive in its implications as it would signal the validity of the consolidation area between 1.02 and 1.06 been broken. In that particular circumstance, you measure the height of the consolidation pattern and added to the breakout point to get a target.
That target of course would be the 1.10 level. This seems like a fairly lofty goal, but in reality it wasn’t that long ago that we were same the same thing about the 0.80 level in this pair. We see no reason to think that the US dollar will strengthen against the Australian dollar over the long term, and it must be said that Chinese economic data is in fact getting better. If that’s the case, then they will certainly be buying more and more from the Australians as far as raw materials. This should create more demand for the Australian dollar, and a lot of Forex traders use it simply as a proxy for the Chinese reminbi.
Looking this chart, a break below the bottom of the hammers would certainly find support at the 1.05 level, and as a result selling just is not an option. Below there are far too many areas of minor support that could get in the way. So with this in mind we simply wait to see this breakout in order to go long. Again, that breakout has to be a daily close above 1.06, but we feel that that move will signal a massive move higher. In the meantime, expect to see quite a bit of choppiness in this pair as the world tries to figure out whether or not the economic conditions are “safe enough” to be involved in currencies that are commodity based.
Written by FX Empire