The AUD/USD pair spent most of the day falling on Wednesday, but did find a significant amount of support just above the 1.04 level. This is interesting to me as I see this as being "middle line" of the larger consolidation area that we have been stuck in for roughly 18 months. I see the consolidation area as being confined by the 1.02 support level, and the 1.06 resistance level.
The fact that we have broken above the 1.04 level and found support is not a big surprise, as it was significant resistance for several days. Now that we have broken above there, I do believe that we are heading towards the 1.06 level, and it should be noted that there is one interesting correlation that seems to be holding up right now - the gold market is perking up, while the Australian dollar is gaining in strength.
Think about that for a second, as it makes complete sense. Australian exports mass amount of gold, and central banks are buying it left and right. Even though we are seeing a lack of confidence in various places around the world, the Australian dollar has hung tough simply because of the correlation to gold. If it weren't for that, I have no idea why the Australian dollar would be trading up at these levels.
Watch Gold, Trade the Aussie
As long as the gold markets hold steady above the $1600 area, we should see a continued strengthening Australian dollar. There of course will be pullbacks, but quite frankly I think the 1.04 level will hold. If we can get above the 1.06 level, and then becomes a measuring stick of sorts as this market would be heading towards 1.10 before the move was said and done based upon the highs of the consolidation area. Because of this, I see plenty of opportunity to be involved in this market, and that there is most certainly value here. However, you should be aware the fact that there will be us significant amount of choppiness going forward, as well as noise due to issues in both Europe and Asia.
