• Home ::
• Technical ::
• Forex Strategy ::
• Pairs to Range Trade

• Send
• Print
• Add To
• Rss

Pairs to Range Trade

a2623e54-81a4-47a7-812b-1dfb59a2d1a4

5

0

Broad AUDUSD Range Finds Fundamental and Technical Support

Mon, Feb 23 2009, 05:46 GMT
by John Kicklighter

DailyFX

There is still a lot of lingering fundamental risk and volatility in the market; but the threats to market-wide shifts seem to have settled. However, even if the winds pick up next week, the stability behind the AUDUSD’s fundamentals and range could still hold the market back.

Why Would AUDUSD Hold a Range?

• Levels to Watch:
  -Range Top: 0.6580 (Pivot, Fib)
  -Range Bottom: 0.6335 (Trend, Pivot)

• Is there a fundamental driver scheduled for next week that can force a broad shift in risk sentiment or spark an unmatched surge for the dollar. This is the primary consideration for the AUDUSD range that has developed over the past four months. With the pair cutting a broad (and gentle) range, reversion to neutral ground should be a natural draw. What’s more, there is little top tier data and the dollar is responding to risk aversion and appetite.

• Technically, the wedge that this pair has cut is the most stable kind. The rising trend has a very gentle slop so there is little need to force a breakout for retracements or relief. Furthermore, the formation is four months into development, with four unique tests of the trend and plenty of room to move. However, beyond trendlines, there is little else for definition.

Suggested Strategy

• Buy: Half-size entry orders will be placed at 0.6370, which is well above this week’s lows.

• Stop: Our initial stop will be set at 6230. This is a wide stop that covers the early Feb lows as well. To secure profit, move the stop on the second lot to breakeven when the first target hits.

• Target: The first objective equals risk (140) at 0.6510 and the second at 0.6650.

Trading Tip – There is still a lot of lingering fundamental risk and volatility in the market; but the threats to market-wide shifts seem to have settled. However, even if the winds pick up next week, the stability behind the AUDUSD’s fundamentals and range could still hold the market back. Looking at this pair from both a fundamental and technical perspective, we still get the picture of stability. The most promising aspect of this general setup is the pair’s range. To be precise, AUDUSD has actually cut an ascending wedge for four months. This is known as a terminal formation (resulting in a break for direction); but at this point, the range is still very wide and the rising trend is still very gentle so the impetus for such a move is very low. From a fundamental angle, we do have the threat of a substantial shift in risk trends. The Aussie dollar is highly sensitive to risk appetite and the US dollar is arguably the top safe haven currency. However, the greenback has recently shown strength when sentiment has both risen and contracted. Our strategy looks to take advantage of the wide range with stops and targets that are set further out. To accommodate a cut out point that covers the previous swing low on the rising trend, we have also lowered our position size. We will cancel all open orders by next Thursday or should spot hit 0.6650 before our entry.

Event Risk Australia And US

Australia – Risk trends are still the primary driver for the Australian dollar. With the second highest benchmark lending rate among the majors and growth forecasts that have recently received significant downgrades, the health of investor sentiment has a clear influence on this currency’s future. From the dockets, the event risk is relatively heavy; but the overall market moving potential of the data is considered limited. Fourth quarter wage costs, construction activity and private capital expenditures are significant for growth and interest rate speculation; but they are generally lagging readings. Monthly data has already benchmarked most of this; yet it could still have its influence on speculation surrounding GDP.

US – The US dollar is in a unique position. Recently, we have seen the currency tighten its correlation to risk trends. With a benchmark lending rate essentially at zero and a laundry list of government initiatives aimed at revitalizing the economy; we have seen currency traders transfer their funds into US treasuries and other securities (even shunning the Japanese yen as the top safe haven). At the same time, we have also seen the dollar gain ground when general sentiment across the markets has improved. This is likely due to the economy’s forward position on the recession curve and the expectations that returns could return the US before its major counterparts. From the calendar, we have a few volatility hurdles to be concerned with. Consumer confidence is a key reading with policy makers and economists looking to see how Americans are responding to policy efforts to turn spending around. A surprise market mover may be the second reading on the 4Q GDP data. While this is a revision, it is open to a significant change, which could undermine the dollar’s new position as top safe haven.

Published on  Mon, Feb 23 2009, 05:51 GMT