By: Christopher Lewis
AUD/USD rose on Tuesday as traders continue to pump money into the commodity currencies. The fact that many believe that central banks are about to enter another round of quantitative easing will often fuel commodity booms, and as a result the countries that produce commodities for everyone else will often see massive inflow of currency causing their exchange rates to rise. It appears this is what has been happening in Australia.
With the European Union in serious trouble, there is real thoughts of the European Central Bank printing Euros through some kind of quantitative easing, something it hasn’t done before. The Federal Reserve in America has already hinted that the idea of quantitative easing 3 isn’t completely off the table, and if Europe falls into some kind of hard landing we could see it. The Chinese are starting to ease in general, and that normally means massive commodity buying by the Chinese sovereign wealth fund. In other words, currencies get weaker, and “things” become more important.
With all of this in mind, it only makes sense that people are buying the Australian dollar. Also, there are very low yields on many bonds right now, and buying this pair also offers a return on investment – something far few things do these days. (Of course, we need the pair to appreciate to make that true over time, but it is a bonus.)
Triangle
The Aussie saw itself break through the top of the massive triangle that I have been tracking. As you can see by the chart, the ascending triangle has a “top” at 1.04, and that level did in fact give way for part of the Tuesday session. However, the later hours saw a selloff that pushed the pair back below that line, and certainly would have many worrying about a “false breakout”.
.jpg "AUD/USD Daily 1/18/12")
Looking at the chart, I am watching two places going forward: The top of the range on Tuesday, and the uptrend line in this triangle. If we can close on the daily chart above the top of the pseudo-shooting star from Tuesday, I would treat that as confirmation of the breakout, and the measurement of the triangle would suggest a run to 1.12 going forward. However, if we manage to close below the uptrend line in the triangle, we are looking at a fall – perhaps down to the “bottom point” of the pattern at roughly 0.9650 or so.