The AUD/USD initially fell during the session on Tuesday, only to bounce to form a hammer off of the Friday bullishness. Looking at the Australian dollar as a proxy for global risk, it appears that traders believe in the possibility of further quantitative easing coming out of the Federal Reserve. With this being the case, all eyes will be on Congress tomorrow as the Federal Reserve Chairman testifies. If he makes any hands that further quantitative easing is coming, this pair should gain. However, we see the 1.0350 level has been crucial resistance in this market, and it will have to see a move above that in order for us to feel safe buying.
Looking at the downside, a break of the bottom of the range for Monday would be bearish, and this pair could fall the way to the parity area. Is there that we feel strong support should come into play, and as such we would more than likely want to take profit at that point in time. However, if we get below parity we would become aggressively short of this market as the next serious support level isn’t until we see the 0.97 level.
The gold market will have to be considered as well, as it will be very sensitive to the Chairman’s words as well. Everybody knows of the Aussie dollar and its relation to the gold markets, and most traders know that the gold markets will gain on the idea of further quantitative easing. The basic idea is a weaker dollar buys less gold, so therefore the price of gold has to rise. This should be the case today as well, and as a result if you choose to trade this pair you may want to keep an eye on the gold markets as well.
Be on the levels listed above, if the $1650 level gets broken to the upside in the gold markets, you should see the Australian dollar absolutely explode in value as well. Of course, if gold starts to fall there is a good chance that this pair will as well.
Written by FX Empire