By: Christopher Lewis
AUD/USD has been bullish as of late, and with the Federal Reserve promising easy rates until the end of 2014, this trend is more than likely going to continue. The higher interest that the Aussie pays to hold over the Dollar will continue to attract investors as the world is full of two things right now as far as yield goes: extremely risky or low yielding and reasonably safe assets. The fact that there is a positive swap almost always helps a pair, but in this environment it is especially attractive.
The pair has recently broken out of a massive triangle that had a top at 1.04. This triangle measured and implied a move to 1.12 before it was all said and done. With this being said, the breakout was something that certainly warranted paying attention to. The markets sold off the Aussie on Monday, but the bounce that was seen at the 1.05 level was telling.
The gold markets also fell during the session, and as the two markets have such a positive correlation, it makes sense that the action played out as it did. The gold markets also formed a hammer-like candle, and showed real strength in the end although it closed slightly lower.
1.05 Support
Because of the recent breakout, selling the Aussie is going to be hard to do. Granted, there will be days when risk is off the table, but as a general rule, the Aussie hasn’t been paying as much attention to that as it traditionally has. The breakout over the 1.04 level actually happened before the Fed’s move, and as such means that much more.
As long as the market holds above the 1.04 level, the triangle breakout is to be believed. This doesn’t mean it will happen all at once, but the overall trend for the year might just be set already. I am currently buying on dips for short-term gains, as well as holding a core position to the long side for a longer-term trade – hopefully holding on until 1.12 or so. In the meantime, I have absolutely no plans on selling unless I see a sub-1.04 daily close.
