AUD/USD Daily Outlook July 4, 2012

AUD/USD rose slightly during the session on Tuesday as it refused to pullback after the massive surge late last week. This is a very bullish sign for the short term, as the 1.0250 level has been overcome as well. The “risk on” attitude of the markets will continue as long as there is an expectation of quantitative easing around the world. The ECB and Bank of England are certainly going to be doing some easing over the next couple of days, and this will set of the Federal Reserve.

The nonfarm payroll numbers on Friday will be very important for this pair, as it is obvious that the Federal Reserve is looking at the unemployment situation in the United States as a measuring guide for monetary policy. The Fed will almost certainly be looking to ease further if there is a port number on Friday; at least that is what the market seems to be thinking currently. The 1.0250 level has given way as resistance, and this is a bullish sign. Gold has checked out a bit as well, gaining $25 during the Tuesday session, and many other commodities such as crude oil have also surged over the last day or two.

1.04 is next

It appears to me that the next significant resistance level in this market is at the 1.04 level. There really isn't much between here and there technically that looks able to push prices down. However, whenever dealing with the Australian dollar you must remember that it is a highly risk sensitive currency. Bad headlines out of Europe or elsewhere could possibly send this pair much lower. I'm not willing to sell yet however, as the parity level looks like such strong support.

My suspicion is this is a classic case of "climbing the wall of worry" that stock traders often exhibit. It will take fortitude to hang on to the high risk currency over the next couple of days, but in a perverse form of logic a bad number is actually good for this risk currency on Friday. It would suggest that the Federal Reserve would be easing soon, and this of course will push money into commodities, which in turn pushes money into Australia.