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AUD Outlook Supported By RBA Policy- Scalp Setup Targets Sub 1.02

By , Currency Strategist
02 October 2012 19:43 GMT

The Reserve Bank of Australia cut the benchmark interest rate this week by 25bps to 3.25% amid ongoing concerns regarding the slowdown in China and persistent weakness in the domestic economy. As the central bank continues to scale back its outlook for growth, we expect to see the RBA continue to strike a dovish tone for monetary policy with Credit Suisse overnight swaps suggesting market participants are factoring in an additional 114 basis points in further cuts over the next twelve months. With the fundamentals looking increasingly bleak for Australia, the technical positioning of the exchange rate remains favorable for intra-day scalps with our directional bias weighted to the downside.

AUDUSD WeeklyChart

AUD_Outlook_Supported_By_RBA_Policy-_Scalp_Setup_Targets_Sub_1.02_body_Picture_3.png, AUD Outlook Supported By RBA Policy- Scalp Setup Targets Sub 1.02

The weekly chart shows the Australian dollar continuing to consolidate into the apex of a broad triangle formation dating back to the 2011 highs with a break below the 52-week moving average risking further declines for the pair. Note that weekly RSI has now pierced the 50-threshold with a weekly close below this level marking the first conviction break below 50 since early March when the pair fell from 1.06 to the 96-handle. It’s also worth noting that slight RSIdivergence has been identified using the August and September highs.

AUDUSD Daily Chart

AUD_Outlook_Supported_By_RBA_Policy-_Scalp_Setup_Targets_Sub_1.02_body_Picture_2.png, AUD Outlook Supported By RBA Policy- Scalp Setup Targets Sub 1.02

A look at the encompassing structure sees the AUDUSD breaking below three technical support barriers in the wake of the RBA’s interest rate decision. The pair broke below the 50-day moving average, trendline support dating back to the June lows and the 38.2% Fibonacci extension taken from the September 14th and 28th crests at 1.0360. We reserve this level as our topside limit with only a breach above this mark (on a close basis) invalidating our broader directional bias. Our primary objective is now eyed at the confluence of the 78.6% extension and the 100-day moving average at 1.0240 and is backed by the 100% extension at 1.0180 (note near-confluence with September low) and the S1 monthly pivot at 1.0160.

AUDUSD Scalp Chart

AUD_Outlook_Supported_By_RBA_Policy-_Scalp_Setup_Targets_Sub_1.02_body_Picture_1.png, AUD Outlook Supported By RBA Policy- Scalp Setup Targets Sub 1.02

Our scalp chart shows the AUDUSD trading within the confines of a descending channel formation dating back to the September highs with an embedded channel formation dating back to the September 27th highs currently governing price action. Interim support targets are held at 1.0260, the 78.6% Fibonacci extension at 1.0240, 1.0215 and the 1.02-figure. A break below our bottom limit at the 100% extension at 1.0175 risks substantial losses for the aussie with subsequent support targets seen at the S1 monthly pivot at 1.0160, the 38.2% extension noted on the weekly chart at 1.0136 and the 123.6% extension at 1.0110.

Interim resistance now stands with the key 61.8% extension at 1.0290 and is backed by 1.0325 and the 38.2% extension at 1.0360. A breach above this mark invalidates our near-term bias with such a scenario eyeing topside targets at 1.0380, the 23.6% extension at 1.0403 and 1.0430. A daily average true range of 96 pips 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.

*We will remain flexible with our bias with a breach above 1.0360 eyeing subsequent resistance targets. It’s extremely important in these market conditions to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity on intra-day biases.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.0290

61.8% Fibonacci Ext

Resistance 2 Target

30min

1.0325

50% Fibonacci Ext

Topside Limit

30min

1.0360

38.2% Fibonacci Ext

Break Target 1

30min

1.0380

Soft Resistance

Break Target 2

30min

1.0403

23.6% Fibonacci Ext

Support Target 1

30min

1.0260

Soft Support

Support Target 2

30min

1.0240

78.6% Ext/ 100DMA

Support Target 3

30min

1.0215

Soft Support

Support Target 4

30min

1.0200

Psychological Barrier

Bottom Limit

30min

1.0175

100% Fibonacci Ext

Break Target 1

Daily

1.0160

S1 Monthly Pivot

Break Target 2

Weekly

1.0136

38.2% Fibonacci Ext

Break Target 2

30min

1.0110

123.6% Fibonacci Ext

Average True Range

Daily

96

Profit Targets 22-25pips

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

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02 October 2012 19:43 GMT