AUD/USD Daily Outlook April 25, 2012

By: Christopher Lewis

With the Federal Reserve meeting and news conference coming later today, this is one of the pairs that I will be watching. The main reason is that the Aussie is so tied to commodities, and gold in particular. This is mainly because I feel the largest moves could actually be in the gold markets, and trading the Aussie can often be a proxy for that market.

The Federal Reserve will be watched intently for signs of further quantitative easing. If there is any hint of it in the statement or news conference, this will almost undoubtedly put pressure on the Dollar, causing gold to rise – and by extension the Aussie dollar. This of course could work in reverse, especially if the Fed mentions worries about inflation. (Very unlikely, but possible.) If that is the case, this pair could continue to fall.

However, there are a lot of things that sit just underneath that have me somewhat cautious about shorting the pair. Granted, there are thoughts of a rate cut by the Reserve Bank of Australia in May, but the fact is that the 50% Fibonacci retracement level and the parity level are both just below. I tend to think the downside is somewhat limited at the moment.

200 Day EMA

The recent action is consolidation, and the hammer formed for the Tuesday session leads me to believe we will see more. After all, we are at the bottom of this area, and a bounce wouldn’t be a surprise. A break of the top of the hammer would signal a move higher to about 1.04 before seeing serious resistance. The 200 day EMA is just above, and I think this will continue to influence this pair as well.

With the announcement and press conference, we could get some kind of clarity by the end of the session. However, as I mentioned above, I prefer to buy this pair as opposed to selling it if I get the signal. If we get above the 200 day EMA – I would be willing to hang onto a long position. However, we need a mention of further easing by the Fed to facilitate this I think. Because of this, if there is a surprise mention of easing – this is the pair to buy I think.