There will always be heated debates between fundamental and technical traders over what truly moves the market – repetitive chart patterns or economics and event risk. Regardless of what camp a market participant prescribes to, liquidity can change the market environment dramatically. This will be a particular concern for all strategies, including range-based trading, given the bank holiday for many key financial centers around the world. So, while our AUDNZD setup is well grounded from both a fundamental and technical perspective, risk will be amplified.
Why Would AUDNZD Hold a Range? · Levels to Watch: -Range Top: 1.2390 (Fib, Trend) -Range Bottom: 1.2075 (Trend, Fib) · The fundamental situation between the Australian and New Zealand currencies are far from equal; but their general association to risk appetite may keep them stable through the short term. The strong economic links between the two countries, along with the close interest rate levels will help stabilize AUDNZD price action in the absence of pressing event risk. And, with holiday liquidity setting in, there may be time for a trade before the docket fills out. · While fundamentals are balancing out, it is the technical setup that is really encouraging heading into a period of uncertain price action. A rising trend from mid-November has coincided with a notable 61.8 percent Fib at 1.21 to curb bearish momentum. At the same time, a steady trend of lower highs has built congestion around 1.24. Suggested Strategy · Short: Entry orders will be set at 1.2350, an aggressive entry considering the spread. · Stop: With an initial stop at 1.2415, we look to cover only the closing wedge. To secure profit, move the stop on the second lot to breakeven when the first target hits. · Target: The first objective equals risk (65) at 1.2285 while the second target will be 1.2220.
Trading Tip – There will always be heated debates between fundamental and technical traders over what truly moves the market – repetitive chart patterns or economics and event risk. Regardless of what camp a market participant prescribes to, liquidity can change the market environment dramatically. This will be a particular concern for all strategies, including range-based trading, given the bank holiday for many key financial centers around the world. So, while our AUDNZD setup is well grounded from both a fundamental and technical perspective, risk will be amplified. Looking ahead to the unusual conditions for tomorrow, it is difficult to tell whether low liquidity will translate into low or high volatility. From the perspective of the range trader, stable markets will better preserve technical boundaries and carry a congestion trade better. However, the absence of banks means a higher concentration of speculative capital, which could leverage price swings while lacking general follow through. As such, our strategy is set with low notional risk and stops that cover little more than the primary technical formation in play (a closing wedge). The entry is aggressive considering the spread, but volatility is likely to make entry as volatility kicks in. If this position is not filled by Friday’s close or before spot hits 1.2220 open orders will be closed.
Event Risk for Australia and New Zealand
Australia – The economic docket obviously clears out for the remainder of this week as the Australian banks will be closed for the Good Friday holiday. However, there could still be influence from the speculative sector as traders weigh in on the health of risk appetite and its influence on price action. The Australian dollar has seen its correlation to yield demand amplified over previous weeks as the investors are torn between the demand for return and safety. Considering the economy has remained relatively buoyant in this global recession with interest rates that offer a substantial advantage over nearly all of its most liquid counterparts. However, the fundamental debate is ongoing; and skeptics think the Aussie dollar is just late to the game like the euro was. This is why there will always be a focus on economic releases. Looking at next week’s docket, there are a few key indicators to benchmark growth potential. The first quarter consumer confidence and March business sentiment reports are good leading indicators for growth.
New Zealand – Like its Australian counterpart, the New Zealand dollar is finding its pace primarily through the risk trends. However, the small island nation is in far worse shape than Australia’s. While monetary policy in New Zealand is volatile and can turn to a regime of aggressive hikes quickly, the current outlook for growth has put its advantage as a high-yield currency in jeopardy. A stark recession and financial markets that are highly sensitive to global capital markets has left policy makers little option beyond lowering the high benchmark rate (itself one of the few draws for capital to enter the economy). With a constant vigil on the economic future, fundamental traders will process all notable event risk for its influence on general growth and the RBNZ’s next rate decision. Data due next week is substantial with business sentiment, retail sales and first quarter CPI gauging consumption and production trends for months to come.
| Data for April 10 – April 17 |
| Data for April 10 – April 17 | ||
| Date (GMT) | Australian Economic Data |
| Date (GMT) | New Zealand Economic Data |
| Apr 13 | NAB Business Confidence (MAR) | | Apr 9-14 | Business PMI (MAR) |
| Apr 14 | Westpac Business Confidence (1Q) |
| Apr 13 | Retail Sales (FEB) |
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| Apr 16 | Consumer Price (1Q) |
Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.
