AUD/USD had another bullish session on Wednesday as traders take advantage of the bounce found at the parity level. The Australian dollar of course is one of the most favored risk assets for currency traders, and as such we may be seeing a little bit of pre-European summit buying. While the market’s reaction to the prospect of a solution coming out of the summit has been somewhat muted in comparison to previous ones, there will certainly be a segment of the population that is still trying to make a few pips off of the "hopium” trade.
The reality of the situation in Europe is that it all comes back to Germany. With Angela Merkel seemingly uninterested in budging, it is very unlikely that we get the bonds that people are looking for out of this meeting. A continent wide bond is more than likely going to be nothing short of a pipe dream at this point in time. The markets will undoubtedly be disappointed, and will find themselves at square one again if this is the case.
Parity bounce
The Australian dollar of course have seen a little bit of a resurgence over the last 40 hours, but a lot of this will come down to the fact that the parity level is such an obvious place for some traders to get back into the long side of the market. The candle from last Thursday was very strong and very negative, and because of this we are a bit suspicious of any bullish action at this point in time. Also, you have to keep in mind that the headline risks out of Europe will increase over the next 48 hours, as the summit is going on.
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With this being said, I am not willing to buy this pair until we clear the 1.02 level on a daily close. Granted, I am probably giving it a lot more room than needed - but in this "risk on, risk off" type of market that we have currently, it makes sense to be very careful in the higher risk currencies like the Aussie dollar. As for selling, a break of the Monday lows would surely hammer that was violated and would interest me for a short position.