By: Christopher Lewis
AUD/USD fell for much of the session on Tuesday as the “risk off” trade came back into the markets. The situation in Europe continues to push the markets around in general, and the Aussie is no real exception. The pair will react to the general sentiment of the markets, and the Aussie has the reputation of being the favored currency when funds want to aim for higher yields and gains in a risk-centric environment. Conversely, when things go poorly, the Aussie will fall quickly.
The recent action in the Aussie has been fairly benign, but the pair has had a nice grinding rally as of late, and to find some area to rest is certainly normal, and even healthy, for this kind of rally. The action has been indicative of a consolidation in an overall uptrend, and this chart could almost be a “textbook” example of what one should look like.
Pick Your Spot
The great thing about this pair is that there are so many things lining up at the same time. The recent breakout of the triangle that had a top at 1.04 has me thinking that the 1.12 level will be a destination eventually. The Aussie is currently gaining due to the fact that the yield is so attractive in a low-yield environment. The continued buying should continue overall, but a pullback looks likely at this point. The market doesn’t like a parabolic move, which this one was borderline in that sense.
The 1.06, 1.05, and most certainly the 1.04 level are all potential support levels. I am going to wait for a pullback in order to buy this pair, and the candlestick formations will lead the way. A hammer at any of these levels would be a great signal to go long, but then again so would a bullish engulfing candle, or just a larger green one. The other possibility is that the pair simply grinds sideways for a while, and then breaks to the upside. I would consider a move to 1.0850 to be indicative of that. Either way, I am not interested in selling the Aussie until we close well below the 1.04 level on a daily close.