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The AUD/USD pair had an outstanding day during the Wednesday session as the 1.02 level now looks more supportive than ever. The market found its way through the 1.03 handle, and is actually approaching the 1.04 handle. This level is in our opinion the center of the consolidation zone that we currently find ourselves in.
The top of the consolidation area in our opinion is the 1.06 handle, and as such we expect that this market will continue up until we reach that area. 1.02 should continue to be the floor, and it would not surprise us to see this market go sideways in this corridor were for some time. This is mainly because of the fact that the Australians are expected to cut rates twice over the next six months, and this of course will make the Australian dollar underperform other commodity currencies.
On the other side of that coin, the Federal Reserve is printing more and more US dollars, but the Reserve Bank of Australia and its rate cutting will more than likely offset the extreme bullishness that would normally be seen in this pair. Commodities should do well over the next several months, but we feel that because of the threat of rate cuts this currency itself will underperform others such as the New Zealand dollar, Russian ruble, and Canadian dollar.
The 1.04 level is the "midpoint" of this area, and of course there will be some type of minor reaction in this general vicinity, but it shouldn't be anything that the trader will worry about. If we get above the 1.06 level we should see another 400 pips or so added to the price as we move into the next consolidation zone. However, if the 1.06 level holds, this affords us another shorting opportunity.
The market has been bullish over most of the summer, and the fact that we have gone sideways means that we are either taking a rest, or getting ready for a massive fall. Judging by the state of the commodities markets, we think it's the former of the two options.