AUD/USD rose on Wednesday after printing a hammer on Tuesday to show support again. The Aussie is a “risk on” currency, and with each rumor that looks like the EU will get some kind of relief, this pair rises. The recent action has been consolidative, and needed for that matter after the recent parabolic jump in the pair. The market is trying to anticipate some kind of solution on Friday out of the EU summit to the debt crisis in Europe. The biggest problem with this is that every time this has happened, the markets have been disappointed.
The pair is likely to continue to have a bit of a bid in it until after the meeting on Friday. The next 200 pips are fraught with resistance, and it really will take something of a fix in order to push this pair above 1.05 in our opinion. Because of this, we are still apt to sell this pair on signs of exhaustion. However, the next two days might be better off if leaving this pair alone was your strategy. Remember though, this is a risk-sensitive pair, so any disappointment out of Europe on Friday will affect this pair negatively.
With this in mind, we are going to let the members of the EU summit dictate what we do in this pair. The selling of this pair will be our trade with about 90% probability being the case. If this pair rises too much before the meeting, it will more than likely be a “sell on the news” event, and if the meeting produces nothing, the pair will be a sell as well. Either way, we don’t see this pair rising over time unless we get that serious fiscal reform out of the EU that we have yet to see. Fiscal union is really what the market wants, and until it gets it – we are going to be very headline driven in the future. This pair looks to have resistance at 1.05, and support at parity. This is the area we are trading it in at the moment, and continue to see the two as a boundary.
Written by FX Empire