Just before liquidity drained away last Friday, risk appetite was recharged and the dollar confirmed a market-wide reversal against its major counterparts. This set us up for a potentially volatile open this week; but volatility has been notably restrained. Certainly these renewed trends are still producing headway; but it is the volatility component that produces the real risk.
| Why Would AUDNZD Hold a Range?
· Levels to Watch: -Range Top: 1.2690 (Trend, Double Top, Fib) -Range Bottom: 1.0585 (Trend, Fib, SMA)
· A relatively stable start to the new week has offset some of the high-level volatility that we left off with on Friday. Staid price action does not mean that larger developments (like the dollar’s reversal or rise in risk appetite) will stall; but it should help those pairs that are not as prone two these two underlying fundamental influences. AUDNZD has a buffer through interest rates and commodities. However, economic health is a considerable friction point.S.
· AUDNZD has made a slow but gradual progression in turning a long-term triple top below 1.30 into a potential trend reversal. Though, to this point, the floor is still in place for congestion that has restrained trend development for the past three months. Immediate support is found in the confluence of a 200-day SMA and Fib at 1.2350. Suggested Strategy
· Long: We will place full-size orders at 1.2370 which is very aggressive. · Stop: A stop of 1.2300 covers the lowest point of the July bear swing and allows for a wide tail. To secure profit, move the stop on the second lot to breakeven when the first target hits. · Target: The first objective equals risk (70) at 1.2440 and the second target is set to 1.2560. |
Trading Tip – Just before liquidity drained away last Friday, risk appetite was recharged and the dollar confirmed a market-wide reversal against its major counterparts. This set us up for a potentially volatile open this week; but volatility has been notably restrained. Certainly these renewed trends are still producing headway; but it is the volatility component that produces the real risk. We are not as concerned about the trend in risk appetite and the dollar as we can reasonably avoid them. With AUDNZD, investor sentiment is the greater concern; so as long as this pervasive market theme is tolerable, congestion can hold. Looking at a chart of this pair, there has been some form of range activity since May. Now at the lower extreme of this congestion pattern, market participants will now look to those Aussie and Kiwi pairs that have a more acute relationship to risk appetite for guidance on this relatively stable pair. Clearly, there is still significant risk in calling a range on even this pair. As such, a moderate toleration of risk is needed. Our strategy attempts to improve its position profile with an aggressive entry and stop well below July lows. However, reduced position size and timing considerations can also be applied. We will cancel all open orders by Wednesday as this pair should either trigger or reverse soon given current level.
Event Risk for Australia and New Zealand
Australia – Risk appetite has been the primary fundamental driver for the Australian dollar over the past week; and it will likely maintain its lofty position through the immediate future. This means that the single greatest threat to price action cannot realistically be prepared for ahead of time. In the meantime, there is also plenty of scheduled event risk from the nation’s economic docket that could spark volatility – and therefore a breakout should spot remain so close to its large technical levels. The more influential release for a truncated week is the semi-annual testimony that RBA Governor Steven’s will give before Parliament early Friday morning. This is the forum for opinions, policy options and straight-forward forecasts. In recent months, the central bank has grown increasingly hawkish in its commentary and outlook; so the question-and-answer dialogue could leave the RBA with an expanded or diminished ability to take a more hawkish stance going forward. Amongst other noteworthy releases in the coming days, confidence will take center stage. July business sentiment, August consumer confidence and 2Q housing affordability will give a broad reading on economic health.
New Zealand – Few currencies are as dependent on yield appetite as the New Zealand dollar. The recent surge in market sentiment over the past month has put the focus back on New Zealand and its currency. The kiwi’s primary role as a major currency is for its relatively high yield. However, in the past year, this advantage has been severely reduced thanks to an aggressive policy of rate cuts aimed at balancing the economy. Nonetheless, traders are still tapped into sentiment as a primary driver for this currency as a recovery in economic and market activity stands to benefit few countries more than New Zealand. From the domestic side of things, there are a few indicators of note. Card spending, business and service sector activity is broad growth; but retail sales will be the benchmark.
Written by: John Kicklighter, Currency Strategist for DailyFX.com.
Questions? Comments? You can send them to John at [email protected]
