The AUD/USD pair initially fell on Monday, but did bounce in order to form a hammer at the top of a very significant move from Friday. Look in this pair, it is becoming very obvious that there is quite a bit of bullish pressure underneath, and as such I am much more comfortable buying now than I would have been just a few short days ago.
Now we have the 1.05 level just above offering resistance. This is the area that the market has to overcome in order to continue much higher, and aim for the 1.06 level. The 1.06 level is the top of the overall consolidation area, and if we can get above that we could go much, much higher. Of course, you have to keep in mind this is a risk sensitive pair, and as such headlines can and will move this market suddenly.
With the concerns of the “fiscal cliff” in the United States, as well as global growth, this pair could get a sudden jolt and go much higher or lower depending on what news comes out and what time. Because of this, I believe that tighter than usual stop should probably be used.
Bullish bias
No matter what the news flow happens to be at the moment, this market does look like it has a bullish bias to it. With this being said, a four hour close above the 1.05 level would be enough to have me start buying again. At that point time, I would then be aiming for the 1.06 level, and possibly even higher if we have any serious amount momentum.
If the “fiscal cliff” situation gets taken care of in Washington DC, I expect a big huge "risk on rally" to ensue, and that should send this pair much higher. Whether or not it can be held onto is the real challenge going forward, as I believe that even though that is one major hurdle, there are plenty of other reasons to worry about. With this being said, I think the Australian dollar is set to rise shortly, but the gains may be somewhat capped.