The AUD/USD pair had a relatively bullish session on Monday as the “risk on” trade came back into vogue as the austerity vote passed in Athens. The trading community will have felt it a good thing, and most traders that got out of longs in riskier assets will have bought on Monday to get back into the markets. However, it should be said that the move wasn’t exactly convincing in several risk assets.
The day saw a pullback in risk appetite, and the Aussie reacted as such. The pair found a lot of resistance at the 1.08 level, and now it seems that the level will become a major area of contention going forward. The Aussie is highly correlated with the commodity space, and as such there are many forces pushing and pulling on the Aussie at the same time.
The headline risks out there are mainly centered on Europe, and as a result many traders won’t necessarily be looking to the Aussie, but it should be noted that the Chinese economy seems to be slowing, and as a result there will be less demand for Aussie commodities. This in turn will weigh on the Aussie if things get worse. The fact that Europe – China’s #1 market – is currently looking weak; there is a real chance of less economic activity in China.
The pair shooting star that was printed on Monday is just below the 1.08 area, and one cannot help but wonder whether or not the move was a “retest” of the support for resistance. The pair looks a bit heavy, and a pullback looks to be in the cards. However, this should be thought of as a pullback and not a meltdown waiting to happen. The pair could find support at 1.07, 1.06, 1.05 and most certainly 1.04 as it was a point of a massive breakout. With this in mind, we would be cautious about selling a break lower in this pair as it should only be a temporary move. The 1.04 level is the “line in the sand” as far as direction in the pair.
Written by FX Empire