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How stable is the AUDCAD Range? • Levels to Watch: -Range Top: 0.9815 (LT Pivot, Triple Top) -Range Bottom: 0.9565 (Trend, Pivot, Fibs) • While both the Australian and Canadian dollars are considered to be benefactors of increased risk appetite when set against other currencies; when set against each other, the hierarchy is clear. The Aussie dollar with a 3.75 percent target rate (and rising) maintains a clear yield advantage to the Canadian dollar. This leverages the response to risk trends; but fundamentals may also help stability. The Aussie economy is the clear outperformer. • The tides are changing. In the past week, the dollar has seen a tangible rally and other risk-based securities have similarly carved swings that suggest a meaningful change in sentiment is developing. However, a clear break has not be forged; and we can see that with the AUDCAD trend channel and congestion above 0.9575. Suggested Strategy • Long: A reduced entry order at 0.9600 well within major tails but still very aggressive. • Stop: With a stop set to 0.9525, it is vital that volatility be constrained to Nov.’s tails. To secure profit, move the stop on the second lot to breakeven when the first target hits. • Target: The first target is larger than initial risk at 0.9715 (115). The second is 0.9790. |
Trading Tip – Many currencies and currency pairs are on the verge of major breakouts and trend reversals. However, this isn’t unique to the FX market; instead it speaks to a prominent fundamental conflict that defines all asset classes and investor appetites in general. Last week’s tumble in key sentiment gauges spoke to the reality that sidelined funds will be tapped eventually and true risk/return considerations will once again have to take control. Yet, while background fundamentals have lagged the buildup in sentiment for some time now; the market has yet to produce a clear catalyst to definitively change momentum on this year’s most pervasive trend. It is not clear how long congestion can hold up; but in the meantime, technical patterns like the one that has defined AUDCAD congestion over the past month-and-a-half will work against anything other than a true and definable trend reversal in risk appetite. For this commodity cross itself, the dominant trend of the 10-months calls support along with a frequented, horizontal congestion floor at 0.9575. What makes this even more attractive as a range setup is the fundamental stability founded in the strength of the Australian economy which helps offset a pure move against risk appetite. For our suggested strategy, it is important to maintain risk exposure by reducing leverage and accounting for recent volatility. Our position size is reduced; but our stop is not particularly wide considering the extent of tails in the area of support going back to mid-October. We will remove all open orders by Wednesday.
Event Risk for Australia and Canada
Australia – Risk trends are currently in command of the technically overbought Australian dollar; and that is not expected to change anytime soon. However, while sentiment is taking the reins on long-term trends, short-term volatility may be riled by an economic docket thick of confirmed market movers. In the near future, there are a number of key component indicators that will offer an early look at the 3Q GDP data that is scheduled for release next Wednesday. The current account balance for the period has obvious implications for broader growth; but it will also offer a focused look into an economy whose current strength is heavily influenced by its trade ties with other stable economies (like China). Other events to watch include the employment data, confidence figures and the RBA’s board minutes from this month’s rate hike. Outside the limited scope of scheduled event risk, a close eye should be kept on global equities to garner a sense of risk appetite – a primary driver for the Aussie dollar.
Canada – Canadian event risk is looking to heat up significantly over the coming week. Friday’s offers are perhaps the most market moving offers of the period. While the country’s monthly jobs report may receive less publicity than its US counterpart, the net change figure is nonetheless a valid source of volatility. A significant surprise in the change or rate figures can easily run short-term technical levels. Also due Friday is the Ivey PMI figure for November. One of the most commonly cited indicators for business activity, this is a gauge that indirectly measures future growth, trade and a myriad of other conditions. After the weekend, the BoC rate decision will mostly likely not bring a remarkable change in policy; but it can be used to time an eventual change.
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