The AUD/USD pair had a fairly wild day on Wednesday as the markets went between a “risk off” attitude and a “risk on” one. The original fall is simply a continuation of all of the problems in Europe and the potential Chinese slowdown weighing on the Aussie in general.
The 0.97 level has acted as support at the end of the session, and the candle is a massive hammer for the day. This bullish candle sets up an interesting trade on both sides. The buying of the Aussie at the end of the day was predicated upon the idea that the Europeans could possibly come out with a strong announcement and a unified stance against all of the debt problems in that region. However, as history tells us – don’t hold your breath.
The level that we touched is one hundred pips above the implied target via the bearish flag a couple of weeks ago. Because of this, we feel that there is probably more to go on the downside before it is all said and done.
Binary trade
The hammer gives us a binary trade set up. By this we mean that the breaking of the top of the candle for the session has us buying as it is a classic buy signal. However, there is a potential resistance area just above, so if we go long – it would be a short-term scalp. If we get a breaking of the lows for the session, this would be an invalidated hammer, and this is a massively bearish sign – and has us selling aggressively.
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The problems in the European Union are far too complex to think that they are going anywhere soon, and because of this we think the riskier assets like the Aussie will continue to be “sell on the rallies” type of markets. The potential bounce is actually a better play to fade in our opinion if you don’t have a lot of time to watch the markets, and the parity and 1.02 levels should be good resistive places to sell from if we get the right kind of weakness.