EURUSD, AUDUSD Trade Setups In Play Ahead of Key Aussie, German Data

In light of the recent surge in volatility, we thought is pertinent to update Monday’s EUR/USD, AUD/USD Scalp Report. All downside scalp targets including our extended break-targets have now been triggered as risk sentiment took a sharp downturn on concerns over Italy. Yields on Italian bonds continue to surge to record euro-era highs with yields across the curve topping 7%. The levels in the key threshold grid have been adjusted to reflect current price action with our medium-term outlook still weighted to the downside. That said, we must acknowledge the possibility of a pullback of some magnitude after such an extended sell off.

EUR/USD Scalp Setup

The EUR/USD broke below the ascending channel formation dating back to the November first low in early European trade today triggering all our profit targets before losing steam just ahead of soft support at 1.3518. A break below this level eyes profit targets at the 61.8% Fibonacci extension taken from the October 27th and November 4th crests at 1.3470, backed by 1.3420, and 1.3380.

Interim resistance stands at 1.3580 backed by the 38.2% extension at 1.3620 and the topside limit at 1.3660. A breach of this level risks further losses for the greenback with such scenario eyeing topside targets at 1.3714 and 1.3750. In light of the steep sell-off seen in early European trade we will consider a 30min ATR to calculate our profit targets. An average true range of 30.24 yields profit targets of 24-38pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break below 1.3518 or a rebound off 1.3580 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed the topside limit at the 1.3660 eyeing topside targets.

Key Thresholds

Upcoming Events

Event risk for the pair mounts tomorrow with the release of the German CPI data. Inflation is expected to remain unchanged with consensus estimates calling for a headline read of 2.5% y/y. Again we note that markets remain focused on further developments out of Greece and Italy as their respective governments scramble to find consensus and approve the need austerity measures required by the EU. That said, traders should be mindful of the release and avoid holding scalps through the data print.

AUD/USD Scalp Setup

The Australian dollar has come under tremendous pressure over the last 24-hours as a global risk sell-off prompted investors to jettison higher yielding “risk” assets. Our bias on the pair remains weighted to the downside as interest rate expectations continue to weigh on the aussie. Credit Suisse overnight swaps are now factoring in a 115% chance of a 25 basis point rate cut from the RBA at the next meeting with twelve month expectations now calling for more than 120 basis points in further cuts. Again we note a rising probability of a pullback of some magnitude after today’s 2.4% decline against the greenback.

The aussie broke below the descending channel formation noted in Monday’s report before finding solace just above the 1.0135 level. Interim support rests here with a break below eyeing profit targets at 61.8% Fibonacci extension taken from the October 27th and November 3rd crests at 1.0105, 1.0070, and the 76.4% extension at 1.0025. A break here risks significant losses for the aussie with extended break-targets eyed at 0.9990 and 0.9950.

Interim resistance stands at the 50% extension at 1.0170 with subsequent ceilings eyed at 1.0205 and the 38.2% extension at 1.0234. A breach of this level negate or medium-term bias with such a scenario eyeing topside targets at 1.0280 and 1.0315. An hourly ATR of 41.06 yields profit targets of 29-33 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that short-scalps will not be active until a break below 1.01355 or a rebound off 1.0170 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 1.0234 eyeing topside targets.

Key Thresholds

Upcoming Events

Key employment data from Australia overnight presents a significant amount of event risk for the pair with consensus estimates calling for the addition of 10K jobs. The unemployment rate however is expected to tick higher to 5.3% from 5.2%. In light of the RBA’s dovish tone cited last week after the central bank cut interest rates by 25basis points, a weaker than expected print risks further losses for the aussie and would further support our bearish bias. That said, traders should be mindful of the release and avoid holding scalps through the data print.

---Written by Michael Boutros, Currency Analyst with DailyFX.com

To contact Michael email mboutros@dailyfx.comor follow him on Twitter @MBForex for updates on this scalp and other trades.

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