By: Christopher Lewis
AUD/USD continues to grind higher overall in the face of many economic headwinds. The move has been pretty impressive if you think about it as the Aussie is historically one of the first currencies to get whacked when bad news comes out. However, we have seen a bit of a decoupling lately as the Aussie is starting to be thought of as a bit safer because of the commodities that Australia holds. In fact, one of my favorite trades until a couple of days ago has been short EUR/AUD.
The pair continues to follow gold on the whole, but copper can also come into play at times. In a world where bond yields are falling, at least in countries that most people are comfortable investing in, the interest yield in the Aussie dollar can be attractive as well. Perhaps this has been part of the strength that under normal conditions wouldn’t have been thought of as legitimate.
The most impressive thing about this rally has been while the Dollar has been rallying against most currencies, this pair has been grinding in a very even tone to the upside. The moves haven’t been overly erratic, and as a result it looks very healthy. There is no mania here, just simply buying.
The 1.04 Level Matters
The 1.04 level has been broken to the upside, however, there is a bit of residual resistance up to about the 1.0450 area. 1.05 will more than likely be thought of as resistance as well, so I prefer to go long above the 1.05 area, even though I think the bulk of the resistance is at 1.04 or so.
.jpg "AUD/USD Daily 1/20/12")
The candle from the Thursday session is a hammer at the 1.04 level. The hammer appears at the top of a rally and ascending triangle, and as a result this can mean a couple of things. The first one is that we have confirmed support at this level, and the pair should continue to rise. The other of course is that we have formed a “hanging man” which can only be confirmed if we break below the bottom of the range form the candle. If that happens – a hanging man is very bearish.
For myself, I see this pair as a likely buy, and I have a nice binary way to decide: If we close on the daily chart above the 1.05 level, I will be long. If we close below the bottom of the Thursday range, I will consider that a hanging man and sell. If we can close below the uptrend line from the triangle on the chart, I would become an aggressive seller. As a side note, this triangle measures for a move up to 1.12 if we get that buy signal and as a result I would be willing to hold for a while on the long side. If we break down, the bottom of the triangle pictured would probably be my target, somewhere around the 0.96 mark.