By: Christopher Lewis
The AUD/USD pair is one of the most popular pairs to trade when the market is in a “risk on, risk off” mindset. This is simply because of the relationship of the US dollar to a “flight to safety” trade. The trading world will often pile into Treasury notes when the markets are nervous as they are considered one of the safest investments. The Dollar will of course rise in value when this environment comes about, and this pair falls as a result.
The Aussie on the other hand is highly correlated with the commodity markets. The gold markets as well as copper futures can often look very similar to this pair as Australia exports a lot of these types of commodities. The Aussies also have a large customer in China, so the Aussie can be traded as a proxy for the economic expansion in Asia as well.
The 1.04 Holds
The 1.04 level was a major support based upon a breakout of an ascending triangle a couple of months ago. The resistance broken at that point was massive, and started a nice run for the bulls up to the 1.08 level. The fact that the triangle measured for a move up to 1.12 comes into play now as well, as this target wasn’t actually achieved. It appears that now we have retested the resistance area as support, and this should in theory launch us upwards for another leg higher.
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The 1.04 level was also the site of the 200 day moving average and the 38.2% Fibonacci level. With all of these things lining up at one time, it was always going to be an interesting place to buy. Adding to this the fact that the Federal Reserve Chairman Ben Bernanke suggested low rates in the US for as long as possible, it caught many traders wrong-footed as they had been betting on a quicker return to normalized rates. This of course worked against the Dollar, and pushed up the demand for commodities – the perfect storm for the Aussie. Because of this, I am long already, and willing to buy on signs of support after short-term pullbacks.