How strongly rooted are the markets to low volatility and mature technicals? In the past few weeks we have seen fundamentals overwhelm long-held congestion bands in other pairs, only to lose the drive behind the breakout soon after the remarkable break. For AUDUSD, we have another long-term zone of congestion pressured by momentum and at risk from speculative fundamentals.
| Why Would AUDUSD Hold a Range?
· Levels to Watch: -Range Top: 0.7240 (Fib, Triple Top) -Range Bottom: 0.6290 (Range Low)
· The biggest piece of scheduled event risk from either side of the market passed this morning (the RBA rate decision); and AUDUSD has come out the other side with its range intact. Looking at the listings scheduled over the coming week, there is plenty of data to develop volatility – but not the level of event risk that threatens major breakouts. Instead, the greater threat comes from the bigger fundamental themes – most prominent risk appetite.
· There are three stages of development behind AUDUSD price action that are all converging. On the higher time frame, we have recently come upon the top of a wide congestion band that has been fortified by a long-term Fib and wide triple top. More recent activity has generated momentum behind a steady trend; but the move has lost its drive this week.
Suggested Strategy
· Short: Half-sized entry orders will be set at 0.7190 for an aggressive and cautious position. · Stop: Our initial stop covers the triple top, but will not hold off a surge in volatility at 0.7240. To secure profit, move the stop on the second lot to breakeven when the first target hits. · Target: The first objective equals risk (130) at 0.7060 while the second target will be 0.6830. |
Trading Tip – How strongly rooted are the markets to low volatility and mature technicals? In the past few weeks we have seen fundamentals overwhelm long-held congestion bands in other pairs, only to lose the drive behind the breakout soon after the remarkable break. For AUDUSD, we have another long-term zone of congestion pressured by momentum and at risk from speculative fundamentals. Recent congestion has confirmed the market’s recognition of a long-term triple top around 0.7250, which has been further backed by the key 50 percent retracement mark of the September through October, panicked bear wave. However, momentum is still behind the bulls. The ebb and flow behind fundamental interests may ultimately decide the market’s direction. Should risk appetite accelerate, it could be enough to overrun the top of our range. Otherwise, a pull back in risky ambitions could sabotage breakout potential long enough to encourage the development of range activity. Considering time is on our sides, our position looks for a more aggressive entry. This further allows us to set the initial stop relatively wide. To reduce the potential for loss on this setup, we have cut our position in half. For a time frame, this position could take some time to develop; but entry orders should be filled relatively soon. We will therefore close lingering orders before liquidity thins for the Friday bank holiday.
Event Risk for Australia and US
Australia – Event risk peaked yesterday for the Australian dollar with the announced rate cut from the Reserve Bank of Australia. The quarter-point cut was a surprise to economists but was otherwise in line with what the market was pricing; which otherwise neutralized the market’s response to the announcement. However, there are longer term implications behind this event that weigh on the longer-term, fundamental strength of the Aussie dollar. Holding a relatively high benchmark rate and looking at dour projections for growth, the currency is losing its key appeal in the currency market. This will be a slow shift without another major economic indicator; but data scheduled over the coming week may contribute to slow adjustments in the meantime. Volatility will be stoked over the next few sessions by the Westpac confidence report for April and the frequently, market-moving Australian employment report. Moves will have to be made before then however as the market holiday on Friday is observed by much of the Western world (including Australia).
US – Often the primary driver for any pair it is listed against, the US dollar is looking to a relatively light docket of scheduled and unscheduled event risk over the coming week. From the calendar, top releases include the minutes from the FOMC’s last rate decision, trade balance figures from February and retail sales due next Monday. However, each of these events is undermined in some way by market expectations. The Fed has already admitted the dire situation the economy is in and has exhausted policy efforts; trade improves with lower domestic consumption and prices; while consumer spending leads the domestic recession.
| Data for April 8 – April 15 |
| Data for April 8 – April 15 | ||
| Date (GMT) | Australian Economic Data | | Date (GMT) | US Economic Data |
| Apr 7 | Westpac Consumer Confidence (APR) |
| Apr 8 | Fed Minutes |
| Apr 8 | Employment Change (MAR) |
| Apr 9 | Trade Balance (FEB) |
| Apr 11 | Markets Closed For Good Friday |
| Apr 11 | Markets Closed For Good Friday |
| Apr 13 | NAB Business Confidence (MAR) |
| Apr 14 | Advanced Retail Sales (MAR) |
Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.
