The AUD/USD pair fell pretty significantly during the session on Thursday, but found enough support at the 1.05 level to bounce much higher and form a wicked looking candle. This massive hammer does suggest that the pressure is building to the upside for breakout, and we believe that the breakout would be signaled by conquering the 1.06 level again. If we can get above that level, we believe that this market will breakout much, much higher levels and as possibly high as 1.10 before the move is said and done.
Looking at this chart, it certainly bullish, and we certainly would want to be short of it. It looks like the 1.05 level is the “floor” for the short-term trader, and the 1.06 level certainly the ceiling. However, the Australian dollar continues to benefit from its relationship with China and the fact that the Chinese are releasing fairly significant economic data in the form of Industrial Production for the year this morning should signal which direction the Australian dollar wants to go.
This may be part of the reason why this pair bounced so hard after disappointing Australian jobs numbers. With this being said, we do believe that people are more focused on China then they are Australia, and simply using this as a proxy for Asian growth. This is a very common currency play, and as a result a lot of times Australia will get a much stronger currency as Chinese economic numbers are better.
As far as selling is concerned, it’s almost impossible to do until we clear the 1.02 level. The reason why we give in such a wide berth is that the 1.02 level is the bottom of the larger consolidation area that we’ve been stuck in for quite some time. This is also why we believe that the breaking of 1.06 is so significant as it is the top. When you measure the consolidation area, this is how we get the target of 1.10 on the breakout. We do believe that this will eventually happen, and when it does it will more than likely be very swift.
Written by FX Empire