AUD/USD fell initially in Monday trading, only to bounce in the later hours as the Americans bid it back up. The “risk off” trade dominated most of the session, and as a result the Aussie got hit slightly. However, the pair has been in a massive uptrend lately, and the momentum is obviously far too strong for the bears to overcome at the moment.
The Reserve Bank of Australia has a rate decision coming this morning that could certainly push this pair along in one way or another. The market in general seems to count on a 25 basis point cut in the rate, but the recently signs point to a possible disappointment. If this is the case, the AUD should gain in general. If the central bank cuts rates, there could be a knee-jerk reaction, but the real focus will be on the statement and any hints as to the direction of rates going forward. If the central bank is willing to cut going forward, this could really weigh on the Aussie. However, if the cut looks to be the end of the rate cut cycle – this pair will more than likely rise in value.
The 1.08 level is a massive barrier, and breaking above that could open the route to the 1.10 level going forward. We mentioned that the former triangle at the 1.04 area measured as a possible move to the 1.12 level, and as such we are expecting this level to give way sooner or later. The Federal Reserve is keeping interest rates at rock bottom lows until the end of 2014, and this will continue to press upon the Dollar in general. As long as this happens, the odds will favor the Aussie as it is so tied to gold and commodities such as copper. The idea of traders wanting to buy “stuff” to replace Dollars is a thought that should continue to catch on unless some kind of meltdown happens in the European Union. The markets aren’t in a position that we are willing to sell at this point. Yes, if the bottom of the hammer from Monday gets broken, it would technically be a “hanging man”, but there are so many supportive levels below that mark we are willing to simply wait until we get supportive action below. We wouldn’t sell until the daily chart closes below 1.04 level. In the meantime, we love buying pullbacks.
Written by FX Empire