AUD/USD fell during the session on Monday as the markets were initially weak in Asia and Europe. The Aussie is always receptive to the “risk appetite” globally, and as a result will often fall in these situations. However, the stock markets picked back up once it was just the Americans involved, and this helped to boost the demand for the Aussie dollar.
The recent breakout of the 1.04 level still means quite a bit to us. The triangle that was formed below measured a move all the way to 1.12, and with the Federal Reserve choosing to extend the low interest rates until the end of 2014 there is a real chance that commodities will continue to strengthen as the Dollar weakens. The Australians will continue to enjoy strong demand for their currency as long as the trends in interest rates continue. Adding to this is the fact that the pair also has a positive swap.
The 1.05 level acted as support during the session, and the hammer shaped candle suggests that buyers stepped in to push the pair higher late in the session. The 1.07 level act as resistance, and we could see the pair struggle to climb above it, but this should only be a bit of a minor hiccup on the way to higher levels.
Because of this, we are only buying this pair, and as long as gold looks healthy, we are even more interested in the Aussie. The bottom of this hammer being broken would be a sign of real weakness, but the 1.04 level is the more important level. As long as this market can stay above it, the pair will be hard to sell. In fact, we think that perhaps taking a “core” position that you can trade around on the way up might be the way to go.
We are buying pullbacks that show supportive price action until we break below the 1.04 level. We also are buying a daily close above the 1.07 level as we think this pair should be healthy most of 2012.