pairs to range trade

Short-Term Momentum Strains An Otherwise Strong AUDCAD Range

Monday, 12 January 2009 16:30:51 GMT  |  John Kicklighter, Currency Strategist

The market has picked up considerable steam since liquidity returned after the weekend, which threatens the low volatility and safety in technicals we usually require for range trading. So, while AUDCAD’s technical setup is promising, we will remain cautious through our setup.

Why Would AUDCAD Hold a Range?   ·         Levels to Watch: -Range Top:       0.8665 (Triple Top) -Range Bottom: 0.8175 (Trend, Fibs, Pivot, SMA)   ·         The Australian dollar has turned sharply lower over the past few active sessions thanks to selling spurred through those pairs more closely linked to risk appetite trends. For AUDCAD, the two economies are on relatively even ground – both are considered to be leaders for their respective regions, finding income through exports and they are expected to ride be among the leaders to the global turn in growth. Interest rates are a different story.   ·         We should not become wrapped up in the strength of technical levels without paying mind to short-term momentum. The recent downturn from AUDCAD has been particularly swift – even if there was temporary reprieve this morning. We must balance support around 0.8175 (a trend and 50-day SMA among other things) with risk through trade setup.   Suggested Strategy   ·         Long: Half-sized entry orders will be set at 0.8210 which is well above today’s intraday low.   ·         Stop: An initial stop at 0.8120 is set relatively wide and should hold against regular tails. 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 0.8300. The second target will be 0.8450.

Trading Tip – The market has picked up considerable steam since liquidity returned after the weekend, which threatens the low volatility and safety in technicals we usually require for range trading. So, while AUDCAD’s technical setup is promising, we will remain cautious through our setup. From a momentum perspective, there has been significant selling pressure against the Australian dollar across many of its liquid pairings. Such a pull threatens to carry this cross to its own bearish breakout if pairs like AUDUSD, AUDNZD and AUDJPY maintain their bearings. However, should they stall (or retrace) before AUDCAD pushes below support, the technical level would likely act as a springboard for bulls. Nonetheless, we must approach this cautiously. Our strategy looks to hold with longer-term momentum (this pull back is relatively young at this point), we have lowered our position size and our stop is relatively wide considering the average tail this pair generates at technically significant levels. We will cancel all open orders by Wednesday. To further lower risk, a trader should also look for a confirmed break in short-term, bearish momentum and perhaps even wait for a reversal before attempting the range.

Event Risk Australia And Canadian

Australia – Once again, the Australian dollar is the currency to watch in our potential range-based pair. Not only is there notable event risk on the economic docket; but a jump in activity behind risk trends has led the currency to be a relatively risky, fundamental candidate for a range position. However, looking at the relative sentiment of traders and lenders, there has been no specific event to summarily shoot risk aversion higher. That does not mean though that speculation for improvement cannot be undone. Looking to predictable risk, there are more than a few notable pieces of event risk scheduled for release. Wednesday morning brings lending figures through investment and real estate. These should offer relatively sound gauges for credit conditions in the country and the consumers’ and business leaders’ efforts to seek it. The docket ups the ante on the following day with December labor data – a proven top-market moving indicator. We should also keep an eye on 4Q business confidence and TD inflation readings.

Canadian – There is very little for Canadian fundamental traders to work in terms of foreseeable event risk. For the current week, only the November physical trade balance figures have any serious market-moving potential. This indicator however is relatively important for long-term growth forecasts – though it has greater relevance for a pair like USDCAD where the commodity dynamic of the report highlights the consumer from producer aspect. Outside of this data, speculation for the BoC rate decision (20th) will also weigh.

Data for January 12 – January 19			Data for January 12 – January 19
Date	Australian Economic Data		Date	Canadian Dollar Economic Data
Jan 13	Value of Loans (NOV)		Jan 13	International Merchandise Trade (NOV)
Jan 13	Investment Lending (NOV)		Jan 19	Int’l Securities Transactions (NOV)
Jan 14	Employment Change (DEC)
Jan 14-30	NAB Business Confidence (4Q)
Jan 18	TD Securities Inflation (DEC)

 

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

Resources

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