What Kind Of Range Can AUDUSD Produce Before An Assured Breakout?

Often times, the perfect range also makes for the perfect breakout. The AUDUSD has clearly defined levels with an abundance of technicals to support congestion on both sides of the market.

[B]Why Would AUDUSD Hold a Range?[/B]

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         ·         [B][U]Levels to Watch:[/U][/B]

         [B]-Range Top:       0.7325 (SMA)[/B]

         [B]-Range Bottom: 0.7150 (Trend, Fib, SMA)[/B]

         

         ·         The pressure is on for AUDUSD. However, while the pair is positioning for a breakout, the fundamental driver for such a dramatic shift in market activity is certainly lacking. Scanning the event risk scheduled for release over the coming week, there is a low chance of a trend change that is forced by any one of these numbers. Instead, market participants will have to monitor the level of risk sentiment in the market. A break without a clear bias will likely fade.  

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         ·         There is a fine line between a technical pattern that looks to be the optimal range and one that seems to be laying the groundwork for a breakout. With each day the AUDUSD passes within its 0.7325 – 0.7150 range, the potential for a breakout grows more intense. A rising trend channel has already overrun a major range high, but now confronts the 200 SMA.

         

         [B][I]Suggested Strategy[/I][/B]

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         ·         [B][U]Long[/U][/B][B]: Half-sized entry orders will be placed at 0.7170 early in the Asian session Monday.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 0.7170 is right on the 20-day SMA, and is meant to only cover the trend. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]

         ·         [B][U]Target[/U][/B][B]: The first objective equals risk (70) at 0.7240 and the second[/B][B] target will be 0.7310. [/B]

                         [B]Trading Tip [/B]– Often times, the perfect range also makes for the perfect breakout. The AUDUSD has clearly defined levels with an abundance of technicals to support congestion on both sides of the market. However, we may have already reached the point where this pair would be considered to be under intense pressure as a mere 175 point range is set between two conflicting trends (a 200-day SMA and rising trend channel six weeks in the making). Therefore, we have developed a very conservative range setup that leaves the door open to jump in on a significant breakout. For the range, the first thing to do is lower the position size and set up a low-risk profile. We have done this with a 70 point stop that complements our half-sized entry orders. Our strategy only looks to exploit the bullish potential in this range as it follow momentum and the otherwise significant break above the 5-month range high at 0.7250 earlier this week. Considering the range is so narrow (and fading), we will only hold open orders for 12 hours at most. At the same time, it is important to recognize the breakout potential behind this pair. If a strong fundamental wind should drive the ultimate break, a confirmed close to either side of this formation could develop a good trade. However, follow through may evaporate without fundamental fuel.

[B]Event Risk for Australia and US
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[B]Australia [/B]– The Australian dollar is backed by one of the highest benchmark lending rates and most fundamentally stable economies among the G10. This has been the source of the currency’s strength over the past few months; but it is also a potential point of volatility and exposure should investor sentiment or interest rate expectations shift. The primary driver for the economic tide is the sense of risk appetite across the market. The Aussie dollar will defer to its oversold condition and 3.00 percent target rate when the market is scrambling for a high level of return. On the other hand, a sweep of fear wouldn’t necessarily catalyze as severe a decline; but the greater the extreme in sentiment, the more direct the impact on price action. Looking further into the implications of confidence on this currency’s price action; we also have to monitor those dynamics that define the correlation. Key will be interest rate speculation. The RBA has held it rate relatively high; but should inflation and the April minutes lower expectations, it could quickly diminish good will.

[B]US [/B]– Whereas the dollar used to be the primary market mover in the FX world, it is now finding itself jostled around by the counter currencies it is valued against. This considerable shift in market sentiment has developed over time as the primary role of the greenback has been put under review. Right now, the market is not clamoring for a safe haven that provides deep liquidity, nor is there an overwhelming drive to seek out the highest yield at the expense of risk (which the US is considered well behind the curve on). Congestion is the dominant force in the market right now because risk sentiment is vague. On the other hand, this could leverage the market’s reaction to run-of-the-mill economic indicators.

                                     [B]Data for April 19 – April 26[/B]

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                                   [B]Data for April 19 – April 26[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]European Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]US Economic Data[/B]

                                                     Apr 19

                                   Producer Price Index (1Q)

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                                   Apr 20

                                   Leading Indicators (MAR)

                                                     Apr 20

                                   RBA Releases April Minutes

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                                   Apr 23

                                   Existing Home Sales (MAR)

                                                     Apr 21

                                   Consumer Price Index (1Q)

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                                   Apr 24

                                   Durable Goods Orders

                                                     

                                   

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                                   Apr 24

                                   New Home Sales

[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]