Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

Scalp Opportunities in AUD, GBP- Tops in Place?

By , Currency Strategist
06 December 2011 20:48 GMT

With massive event risk just over the horizon, markets have continued to trot along with little conviction ahead of the ECB rate decision on Thursday and the EU summit on Friday. A steady stream of headlines out of Europe and threats of sovereign downgrades on the EU nations have fueled ongoing concerns regarding the sustainability of the Euro-project and in turn investors remain cautious ahead of key events later this week, culminating with the EU summit. Our medium to long-term bias on risk remains weighted to the downside as the fundamental outlook remains intact. However with such sensitivity to European headlines, the possibility for further topside moves cannot be ruled out. Here are the scalp setups I am currently trading.

AUD/USD Scalp Setup

Scalp_Opportunities_in_AUD_GBP-_Tops_in_Place_body_Picture_2.png, Scalp Opportunities in AUD, GBP- Tops in Place?

The RBA cut interest rates last night as expected with central bank Governor Glenn Stevens citing that “Financial conditions have become much more difficult, especially in Europe. This, together with precautionary behavior by firms and households, means that the likelihood of a further material slowing in global growth has increased.” The most notable remark made by the Governor was regarding the situation in China with Stevens noting that, “China’s growth has been slowing. Trade in Asia is now seeing some effects of a significant slowing in economic activity in Europe.”

The statement was the first time that the central bank has acknowledged the threat of a slowdown in Asia’s powerhouse and suggests that Australian officials continue to see a risk to the economy should conditions in China continue to deteriorate. The increasingly dovish outlook leaves the door open for further easing from the RBA with Credit Suisse overnight swaps now factoring a 116% chance of another 25 basis point cut next month which would mark the third rate cut in three months from the central bank.

We have continued to actively scalp the AUD/USD as price holds between the 50% and 61.8% Fibonacci retracements taken from the November decline at 1.02-handle and 1.0330 respectively. Interim support rests at the figure with subsequent floors seen at 1.0155, 1.0115, and our bottom limit at the 38.2% retracement at 1.0070. A break below this level risks further losses for the aussie with subsequent break-targets eyed at 1.0040, parity, and 0.9950 with stronger support seen at the 23.6% retracement at 0.9915.

A breech above interim resistance at the 1.0250 level eyes targets at the 1.03-figure, backed by our topside limit at the 61.8% retracement at 1.0330. A break here negates our short-term bias with such a scenario eyeing subsequent ceilings at the 1.04-handle, 1.0440, and the 76.4% retracement at 1.0485. An hourly average true range of 27.04 yields profit targets of 22-25 pips 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 the 1.02-figure or a rebound off 1.0250 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed the topside limit at 1.0330 eyeing topside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0250

Soft Resistance

Resistance 2 Target

30min

1.0300

Soft Resistance

Topside Limit

30min

1.0330

61.8% Fib Retracement

Topside Limit Break-Target

30min

1.0400

Soft Resistance

Topside Limit Extended Break-Target

30min

1.0440

Basic Resistance

Support 1 Target

30min

1.0200

50% Fib Retracement

Support 2 Target

30min

1.0150

Basic Support

Support 3 Target

30min

1.0115

Soft Support

Bottom Limit

30min

1.0070

38.2% Fib Retracement

Bottom Limit Break-Target

30min

1.0040

Soft Support

Bottom Limit Extended Break-Target

30min

1.0000 (Parity)

Soft Support

Average True Range

1hour

27.04

Profit Target 22-25 pips

Upcoming Events

Event risk on the pair mounts overnight highlighted by the 3Q GDP print. Consensus estimates call a year on year print of 1.9%, up from 1.4%, while the quarter on quarter print is expected to slide to 0.8% from 1.2%. A weaker than expected print here would likely weigh heavily on the aussie as the data would echo concerns cited by RBA Governor Stevens last night with longer term targets for the aussie eyed at the 99-figure.

Date

GMT

Release

Expected

Previous

12/6

23:30

Gross Domestic Product (QoQ) (3Q)

0.8%

1.2%

12/6

23:30

Gross Domestic Product (YoY) (3Q)

1.9%

1.4%

12/7

4:00

Foreign Reserves (Australian dollar) (NOV)

-

A$44.9B

GBP/USD Scalp Setup

Scalp_Opportunities_in_AUD_GBP-_Tops_in_Place_body_Picture_3.png, Scalp Opportunities in AUD, GBP- Tops in Place?

A fresh setup on the sterling reveals optimal scalp targets as the GBP/USD continues to trade within the confines of a descending channel formation. Last week Chancellor of the Exchequer George Osborn announced a £40 billion program to ensure free flowing liquidity to small businesses in response to ongoing concerns of a looming credit crunch. Although the move aims to support the real economy, many have questioned whether the program will derail the government’s austerity plan as sovereign deficits remain an underlying market theme in light of the European crisis.

With the BoE rate decision on tap later this week, the pound could see strong headwinds as we head into the print, with our bias remaining weighted to the downside. Support profit targets are eyed at the 50% Fibonacci extension taken from the November 18th and 30th crests at 1.5550, with subsequent floors seen at 1.5520, the 61.8% extension at 1.5495, and our bottom limit at 1.5460. A break here risks further losses for the pound with break targets held at the 76.4% extension at 1.5425 and the 1.54-handle.

Interim resistance stands at the 38.2% extension at 1.56-figure backed by 1.5640 and the 23.6% extension at 1.5670. A break above this level negates our short-term bias with such a scenario eyeing subsequent targets at the 1.57-handle, 1.5750, and last week’s high at 1.5780. An hourly average true range of 31.73 yields profit targets of 27-27 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 the 50% extension at 1.5550 or a rebound off the 1.56-figure or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move above our topside limit at 1.5670 eyeing topside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.5600

38.2% Fibonacci Ext

Resistance 2 Target

30min

1.5640

Soft Resistance

Topside Limit

30min

1.5670

23.6% Fibonacci Ext

Topside Limit Break-Target

30min

1.5705

Soft Resistance

Topside Limit Extended Break- Target

30min

1.5750

Soft Resistance

Support 1 Target

30min

1.5550

50% Fibonacci Ext

Support 2 Target

30min

1.5520

Soft Support

Support 3 Target

30min

1.5495

61.8% Fibonacci Ext

Bottom Limit

30min

1.5460

Soft Support

Bottom Limit Break-Target

30min

1.5425

76.4% Fibonacci Ext

Bottom Limit Extended Break- Target

30min

1.5400

Soft Support

Average True Range

30min

31.73

Profit Targets 24-27 pips

Upcoming Events

Event risk for the sterling comes in to play tomorrow morning with industrial production, manufacturing production, and the NIESR GDP estimate on tap. Both production and manufacturing are expected to have slowed in October with a weaker than expected print here likely to trigger further downside moves in the pound. Traders will also be eyeing the GDP estimate later in the day for a snapshot into growth prospects for the UK. Again here we note that a disappointing read would likely see expectations for further easing from the Bank of England rise and accordingly the sterling may yet face further downside pressures. It’s worth noting that if tomorrow’s data comes in at consensus, the pound may find some solace, with a breach above our topside limit eying subsequent resistance levels.

Date

GMT

Release

Expected

Previous

12/7

8:30

Industrial Production (MoM) (OCT)

-0.3%

0.0%

12/7

8:30

Industrial Production (YoY) (OCT)

-0.7%

-0.7%

12/7

8:30

Manufacturing Production (MoM) (OCT)

-0.3%

0.2%

12/7

8:30

Manufacturing Production (YoY) (OCT)

1.4%

2.0%

12/7

14:00

NIESR Gross Domestic Product Estimate (NOV)

-

0.5%

---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.

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from

06 December 2011 20:48 GMT