Commodity Currencies Advance Towards Larger Technical Boundaries
Underlying sentiment trends have held a moderate bullish bias over the past few weeks; but momentum has notably lacked in this closely monitored trend. From a technical perspective, this restraint can be assigned to the proximaty of notable technical boundaries across the different asset classes and currency crosses. Fundamentally, the influx of speculative capital has been tempered by the presence of large economic concerns (sovereign debt risk, a potential European crisis developing out of Greece's troubles, the rollback of stimulus around the world, etc). These headwinds are constant and will not fully dissipate for quite some time. Therefore, the impact this wall of concern has on the markets will fully depend on the market's appetite for yield and its assessment of general instability. Naturally, this leaves the commodity currencies - highly attuned to risk trends - carving an uneasy course. It is particularly interesting that despite relative stability in sentiment and price actoin this past week, the Australian dollar would find little headway on a strong 4Q GDP reading and an RBA hike to 4.00 percent. Uncertainty is a force in its own right. A stabalizing force.
Considering price action is currently anchored by uncertainty, it is best to wait for relief whereby the markets can turn back to establishing new trends. Under these conditions, playing clear and well-worn ranges as well as awaiting a clear breakout represent the best general strategies to take. I have one of each. USDCAD is carving a very broad descending wedge formation with 1.02 as a notable floor. Having fallen six consecutive days, the potential for a reversal near the floor of this pattern is growing more and more probabe (especially as price action is slowing in its approach); however, I would rather play this as a breakout scenario with a push below 1.02. The reason for this is that USDCAD is naturally adverse to aggressive trends. Yet breakout momentum is the same as with any pair. Therefore, a confirmed move below 1.02 will encourage me to enter a short with a stop set above the previous daily bar's high and a first target just above parity. For a range setup, I like NZDUSD testing its falling trend of highs starting on Jan 22. I will look for a short entry at 0.6985 which will carry a stop of 0.7025 and a first target of 0.6850.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.