AUD/USD Daily Outlook March 7, 2012

By: Christopher Lewis

AUD/USD fell hard during the Tuesday session as the “risk off” trade came roaring back. Of course, it is Greece that is in the forefront of the storm, and it’s about time – I don’t think that we have worried about it for something like 5 days now. (Sarcasm)

The Thursday session will see the announcement of participation levels by private investors in haircuts in the Greek debt markets. The participation needs to be high enough to absorb the shock, and people are not willing to take serious risk beforehand, as a failure would launch a storm of CDS contracts, and this would result in unknown losses in various banks around the world. This would in turn cause many banks to stop lending to each other, and the 2008 memories would come roaring back I am sure.

The Aussie will continue to benefit from the ultra cheap money that central banks are throwing around the world, as investors buy “stuff” to store value. The commodity markets will continue to get a bid and this in turn always tends to push the Aussie higher.

1.06……1.05…..1.04…..

Looking at the charts, we see that there was a significant breakout at the 1.04 level, which of course was predicated on an ascending triangle being broken to the upside. The measured move implied that we were heading to the 1.12 level, and there isn’t anything on this chart that has changed my mind at this moment. With the recent pullback, we are still well above the 1.04 level, and it would literally take that level being crushed in order for me to start selling this pair.

The 1.06 level has given way, and it was support during the recent sideways action in this market. However, the 1.05 will attract buyers simply because it is such a large number in the psychology of trading, and the market will more than likely react. The 1.04 level is a much larger level, and I am expecting this level to hold. It would take a breakdown below the 1.04 level for me to change my thesis going forward. I am presently willing to buy any supportive action in this pair, buying the dips all the way up to 1.12 – knowing that the pullbacks will come from time to time.