The AUD/USD pair fell during the Monday session as the world awaits the decisions out of Germany, Holland, and the Federal Reserve. Assuming that the Germans rule that the ESM is constitutional, and the Dutch don't elect some type of radical anti-European Union politicians, one would have to think that the focus of this particular currency pair will be on the Federal Reserve.
The Federal Reserve is expected to do some type of quantitative easing later this week, but now it comes down to whether or not they do enough to placate the markets. If the markets don't get what they want, and feel that the Federal Reserve has essentially punted on the need for easing, we could see a pretty significant selloff in this particular pair.
This is because the market has essentially price then significant quantitative easing by the Federal Reserve over the last week. The two massive green bars from last week's show exactly what the market thinks, and now the 1.03 level should be some form of support.
1.03 is important
In my opinion, the 1.03 level will tell the tale in this particular currency pair. I think that should be a bit of a floor in this market, especially if there's going to be any chance of a rally. If it does give way, I daily close below that level I would be willing to sell this currency pair. I do believe however, that the area will hold and the commodity rally will start. After all, the Federal Reserve is known for doing what the market wants, and the market wants more quantitative easing.
If the 1.03 level does give way to the sellers, I believe that we will see parity in relatively short order. However, I think is more likely that we see 1.05 before that happens. Nonetheless, the Thursday announcement out of the FMOC is going to be the biggest catalyst for this pair in my opinion. So far, it looks like a little bit of a pullback could be happening early this week, but most of us out here believed that by the end of the week we should have the "risk on" trade back in place. This of course is always good for the Australian dollar.