AUD/USD Daily Outlook March 5, 2012

By: Christopher Lewis

AUD/USD has been running hard to the upside over the last several months. The pair is of course a commodity driven one as most traders know. The commodity trade has been very positive so far this year, and as a result the Aussie will always benefit.

More recently, this pair has been going sideways. This is natural as the pair has been so strong since December. When a pair moves like this, you will often see one of two possible moves next: either a pullback, or a sideways grind. This allows the traders that didn’t get involved before, and feel that they missed the bull run. The pair most certainly looks like one that will grind sideways, and when looking at the recent consolidation it is relatively short compared to the time it spent going higher.

This is bullish for the pair in general, as it will attract more buyers the longer it just “sits” there. This allows for confidence to build in the uptrend, and as a result more traders will pile in, eventually pushing the pair out of the range as it rises again.

Every 200 Pips

With the possibility of being overly simplistic, this pair loves to form support and resistance levels every 200 pips lately. Looking at the charts, we can see an obvious resistance area at the 1.08 level that continues to keep the rate of this market down. The pair has smashed into the level several times, only to be turned away.

At the bottom of this consolidation area is the 1.06 level, and this has managed to hold price up over the last several weeks. This should be considered one of our buying levels if support shows itself in the area. The recent action suggests that this level is going to be a strong one for support, and I will be an area that I plan on buying if we get a supportive candle. If not, the 1.04 level should be extremely supportive as it was the site of a massive breakout. Going forward, I will only buy this pair as long as we are above the 1.04 handle.