The AUD/USD pair initially fell during the session on Thursday, but found enough support at the 0.9425 area to bounce and significantly break through the 0.95 handle. In fact, we have close the very highs of the session, near the 0.9650 level. With that being the case, I believe that this market has significant upside potential. That being the case though, I am very hesitant to buy into we clear the top of the resistance area as I see it. Right now, that level is the 0.98 handle, and I need to see the daily close above that in order to be convinced that the momentum has completely changed in this market.
On the other hand, a resistive candle near that level would be too enticing for me not to start shorting, as the downtrend with the Australian dollar certainly would be continuing. With all of the volatility out there and concerns about risk assets, this market will more than likely be very headline driven going forward.
Reserve Bank of Australia
The Reserve Bank of Australia recently stated that there were significant headwinds in the economy, and as a result many in the marketplace believe that the Aussies are not too awfully far from cutting rates. Whether or not this is true, there's a general perception of it and that is all that is needed. After all, if the market think something is going to happen, it will often force it to happen.
Watch the gold markets as well, as there is a longer-term correlation between gold and the Aussie dollar, but that particular correlation isn't always effective. Recently we've seen it get a little bit disjointed, but a return to strong lose upwards in the gold markets would certainly benefit the Australian dollar, so keep an eye on that.
As far as shorting is concerned, we need to see that resistive candle but I think that the next 24 hours will be more positive than negative for the Aussie dollar as the "risk on" trade came back into play during the US session.
