bio2

A Clear Channel And Immunity To Risk Trends Stabilizes AUDCAD Range

Tuesday, 06 January 2009 16:57:58 GMT  |  John Kicklighter, Currency Analyst

A rebound in risk appetite has thrown many, former ranges into disarray. However, the AUDCAD congestion we have pointed out will both benefit from a sustained rise in yield demand and even a tumble back into risk aversion.

Why Would AUDCAD Hold a Range?   ·         Levels to Watch: -Range Top:       0.8650 (Range, Trend) -Range Bottom: 0.8400 (Pivot, Fib)   ·         Risk appetite has risen since the turn of the year; but its permanence is questionable. However, whether or not the market is able to hold back the dam on fear and deleverage is less of a concern for AUDCAD. While there is a significant yield differential between the two currencies, this pair seems to have found a stronger foundation in the relative strength of the underlying economies, robust markets and comparatively bullish rate forecasts.   ·         Looking at the development of AUDCAD price action, this pair is following the course of a dominant trend channel that has happen to come upon short-term congestion. However, working within the auspices of both formations, there is a better chance at success. Support is seen on a relative pivot, rising trend and 20-day SMA. Resistance is far less stable.   Suggested Strategy   ·         Long: Entry orders will be set at 0.8430 – within today’s range but relatively aggressive.   ·         Stop: An initial stop at 0.8360 is relatively tight considering the frequent tails, but follows trend. To secure profit, move the stop on the second lot to breakeven when the first target hits. ·         Target: The first objective equals risk (70) at 0.8500. The second target will be 0.8600.

Trading Tip – A rebound in risk appetite has thrown many, former ranges into disarray. However, the AUDCAD congestion we have pointed out will both benefit from a sustained rise in yield demand and even a tumble back into risk aversion. Taking a critical look at this pair from a technical and fundamental perspective, AUDCAD looks to have a solid foundation for a short-term range. For an economic bias, our long strategy follows the probability of swelling optimism with a significant yield differential. Alternatively, even if sentiment changes course, we have seen this pair weather such seas for the past two months. Looking at the charts, our horizontal range falls within a broader, rising trend channel. This aligns our short-term congestion play with the dominant trend; but it also means the life of this setup is limited. Therefore, we will cancel any open orders after two days or should spot hit 0.8610 before we are entered. Looking further to our risks, volatility is quite high and tails have been large; so our channel will have to stand up to false breakouts. This is further reason to limit the time frame on this strategy. Ultimately though, this short-term setup is a good buffer to the open AUDNZD range orders from Monday. 

Event Risk Australia And Canada

Australia – The Australian dollar has appreciated against most of its major counterparts over the past few days, a reflection perhaps of a general rebound in risk appetite or even a shift in the currency’s place as a risky asset. Regardless, the shift is just beginning; so it will have to be an influence that is monitored closely as it could decouple the currency’s relationship to other notable trend leaders. Outside of this big theme, the docket shows event risk is relatively heavy over the coming week, but the data is grouped at the poles. Most of the notable data will cross the wires over the next few days. Wednesday morning in Australia, we will see the release of HIA new home sales and a retail sales report. As officials and traders turn their attention to growth trends (as opposed to yield and credit), these figures will offer fine tuning to the highly speculative game of forecasting the relative strength of the Australian economy. Indicators released on the following day will develop these concerns with readings on trade and construction activity. Looking beyond the weekend, the labor data for December is a significant threat as a top market mover; but we should not be flat by the time this hits.

Canada – While the economic field is relatively flat over the next few active sessions, event risk certainly picks up as time passes. The first notable release is Thursday’s Ivey PMI. This business activity report has been, and will continue to be, a leading indicator to for the influence of the global financial crisis and recession on the Canadian economy. So far, the impact seems to be conservative; but a there are signs that government data may not be telling the whole story. If this is the case, Friday’s employment gauge will certainly reflect a deeper contraction. Domestic consumption trends are vital for compensating for a clear drop in foreign demand for exports. Beyond the weekend, the fourth quarter business outlook and senior loan officer survey will help provide some objectivity to forecasts.

Data for January 7 – January 14			Data for January 7 – January 14
Date	Australian Economic Data		Date	Canadian Economic Data
Jan 6	HIA New Home Sales (DEC)		Jan 8	Ivey Purchasing Managers Index (DEC)
Jan 6	Retail Sales (NOV)		Jan 9	Employment Change (DEC)
Jan 7	AiG Performance Of Construction (DEC)		Jan 12	Business Outlook Future Sales (4Q)
Jan 7	Trade Balance (NOV)		Jan 12	BoC Senior Loan Officer Survey (4Q)
Jan 14	Employment Change (DEC)		Jan 13	International Merchandise Trade (NOV)

Questions? Comments? Send them to John at jkicklighter@dailyfx.com.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars