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AUD/USD Medium Range Short Scalp- Fading the Risk Rally

By , Currency Strategist
15 September 2011 19:45 GMT
AUDUSD_Medium_Range_Short_Scalp-_Fading_the_Risk_Rally_body_audusd1.png, AUD/USD Medium Range Short Scalp- Fading the Risk Rally

News that the ECB has coordinated with the Fed, the BoE, the BoJ, and the SNB in an effort to boost dollar liquidity to European banks sent stocks higher as concerns about an imminent default eased. However we note that this is not a long-term solution and we’ll look to fade the recent rally in risk. Interestingly enough the aussie has remained rather heavy in light of strong gains in the equity markets suggesting that sentiment lack conviction and may see a reversal Accordingly our bias on the aussie is weighted to the downside with the 200-day moving average likely to cap topside moves at 1.0390. Note that a test of this moving average may be in the cards before the scalp is triggered.

AUDUSD_Medium_Range_Short_Scalp-_Fading_the_Risk_Rally_body_audusd2.png, AUD/USD Medium Range Short Scalp- Fading the Risk Rally

A 30min chart shows the pair breaking above the 38.2% Fibonacci extension taken from the August 1th and September 1st crests at 1.0315. Preferred short entry targets rest here with subsequent ceilings seen at 1.0370 and 1.0420. Profit targets are held at the 50% extension at 1.0180 backed by 1.0110 and the 61.8% extension at 1.0445.

Key Thresholds

With a 1-hour average true range of 28.31 profit targets on said scalp should be between 21-26 pips depending on entry. We reckon a break above the topside limit at 1.0485 negates the bias with such a scenario eyeing topside targets at 1.0565 and the 1.06-firgure.

Note the scalp will not be active until a confirmed break below the 1.0235 or a rebound off 1.0370. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

1.0370

Resistance 2 Target

30min

1.0420

Topside Limit

30min

1.0485

Topside Limit Break-Target

30min

1.0565

Support 1 Target

30min

1.0180

Support 2 Target

30min

1.0110

Bottom Limit

30min

1.0045

Bottom Limit Break-Target

30min

0.9950

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

1.0594

100-SMA

Daily

1.0625

200-SMA

Daily

1.0389

RSI

Daily

40.89

Average True Range (14)

1hour

28.31

Related Economic Data Releases

There is little in the way of event risk on this particular setup with no data out of Australia for the remainder of the week. Highlighting the US docket is the University of Michigan confidence survey on tap for tomorrow. Consensus estimates call for a print of 56.9 from a previous read of 55.7 which was the lowest print since November of 2008. The single greatest risk to our setup is a substantial pickup in risk appetite which would see the aussie strengthen against the low yielding dollar.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

US

9/14

13:00

LOW

Net Long-term TIC Flows (JUL)

$22.5B

$3.7B

US

9/14

13:00

LOW

Total Net TIC Flows (JUL)

-

-$29.5B

US

9/14

13:55

MEDIUM

U. of Michigan Confidence (SEP P)

56.9

55.7

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex for updates on this scalp and other trades.

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15 September 2011 19:45 GMT