By: Christopher Lewis
AUD/USD has been an interesting pair lately. While the Dollar has done quite well against most currencies, the Aussie continues to show a determination to grind higher. The pair is normally a barometer of risk, and will normally fall when the global situation is very poor like we have seen over the last several months. However, this pair does perhaps show that a bit of decoupling of the “risk on, risk off” trade may be going on.
The European Union continues to offer a lot of concerns for the markets, and in times past, this pair would have fallen as a result. However, as the Euro falls – the Aussie continues to grind higher. The fact that this can happen even as the Dollar gains overall shows real strength in the Aussie in my opinion. As a side note, the Aussie is at multi-decade highs against the Euro at the moment. The Aussie also looks very strong against the Zloty out of Poland, and the Hong Kong dollar. (To give you an idea of just how wide-reaching this strength seems to be.) When you see strength or at least building pressure to the upside against many other currencies, and better yet…ones that are completely unrelated – you know there is something to this.
Looking at Triangles
Looking at the chart, the first thing I see is an ascending triangle. Granted, there is a lot of resistance at the 1.04 level, but the fact that I am seeing this pattern over and over against many other currencies leads me to believe that the market is trying to tell us something.
.jpg "AUD/USD Daily 1/16/12")
The hammer that was formed on Friday is a good sign that a fall in the Aussie couldn’t be retained, and that the bulls are confident enough to keep coming back. This signifies pressure to the upside, and it looks like a slow “grind” upward – something that indicated real buying as it takes time to form these kinds of charts.
Measuring the triangle from the top to the bottom, it suggests that we are looking at an 800 pip move. The breakout point would obviously be at the 1.04 mark, so this signals that we could see 1.12 if the pattern proves to be true. A breakdown of this triangle would have to include a close below the triangle’s uptrend line, and would have me aiming for the 0.96 handle. However, with the gold markets looking like they want to break out as well, (Aussie will follow them most of the time.) I am thinking a long is most likely the result. On a daily close above 1.04, I am long this pair.