AUDNZD Range May Survive Coming Volatility And Provide A Good Setup

Why Would AUDNZD Hold a Range?   ·         Levels to Watch: -Range Top:       0.8015 (Trend, Pivot, Fib, SMA) -Range Bottom: 0.7735 (Channel Bottom, Fib)   ·         There is substantial event risk from the majors over the next 48 hours of trade. Considering many of the market’s most liquid currency pairs are are already threatening to break out of tight congestion bands at the very edge of multi-year lows and highs, the presence of Friday NFPs and the BoE and ECB rate decisions tomorrow makes it very dangerous to search seek a range trade. However, only broad shifts in risk really threaten AUDNZD   ·         Congestion that has developed for AUDNZD over the past week comes with only modest boundaries. A short setup on the range high around 1.2750 this morning would have led to a descent position; but it would have gone against the dominant trend. Instead, we are looking at the trend/fib confluence around 1.2475 as a key level to base a range on.   Suggested Strategy   ·         Long: Half-sized entry orders will be placed at 1.2505 – short of for the trend, but not the range.   ·         Stop: An initial stop at 1.2415 is wide enough to cover the rising trend range low. To secure profit, move the stop on the second lot to breakeven when the first target hits. ·         Target: The first objective equals risk (90) at 1.2595. The second objective is 1.2685.

Trading Tip – Over the next 48 hours, currency market volatility will be stoked by two key central bank rate decisions and the defining US non-farm payrolls report. With the most liquid currency pairs positioned for major breakouts, such tremendous event risk exposes any range setup to danger. However, isolating risk through technicals and fundamentals as much as possible, the risk / reward on AUDNZD may offer a worthwhile position for risk tolerant traders. A bearish reversal this morning from this pair at resistance confirmed a broad range; but this pullback actually goes against the market’s dominant trend. With a confluence of technicals calling up support at 1.2475, there is a clear entry on a larger bullish bias. Our stop is relatively tight to avoid the potential for market-wide volatility over the coming days; and we are looking for nearby targets to insure we aren’t in the market for too long. We will cancel all open orders before the week ends.

Event Risk Australia And New Zealand

Australia – The Australian indicator with the greatest market moving potential (the RBA rate decision) has come and gone; and there is little reason to believe it will have a lasting influence on volatility. However, this does not mean that the currency is in the free and clear from a fundamental perspective. There is actually considerable risk on the docket ahead. Up next, the RBA Quarterly policy statement is the only notable indicator for the remainder of the week; but considering the RBA has already announced rates, expectations for a reaction are reserved. Beyond the weekend, we will receive confidence indicators from both the business and consumer sectors to forecast the pace of growth through the first quarter. Top event risk comes next Wednesday morning’s employment report for January. Outside of the calendar, the Aussie dollar’s correlation to general risk trends may also present a threat to price action. An eye should be kept on USDJPY and the Dow for guidance on sentiment.

New Zealand – There are two primary, fundamental drivers for kiwi price action: rate decisions and growth. The RBNZ has already announced its intention to throttle back on its steady pace of rate cuts; but growth has filled the bearish void and kept the currency under pressure. Governor Alan Bollard has already projected an unavoidable recession and financial conditions have certainly deteriorated with time. From the scheduled economic docket, there are only two market-worthy indicators that threaten long-term fundamentals or immediate volatility. Next Wednesday’s retail sales report will end the fourth quarter measurement and offer one of the best benchmarks for economic activity. What’s more, with the RBNZ suggesting it will slow its rate cuts, the kiwi may keep its appeal as a carry currency and thereby see a higher correlation to general risk trends.  

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