A Long-Term AUDNZD Wedge Confronts Unchecked Momentum

The commodity bloc has seen some of the most significant trends in an otherwise active currency market. However, the standard modes of momentum (risk appetite, commodity price fluctuation, growth forecast) have been otherwise subdued.

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

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

         [B]-Range Top:       1.2940 (Triple Top)[/B]

         [B]-Range Bottom: 1.2500 (Trend, Fib, Pivot)[/B]


         ·         Commodity currencies have been extraordinarily volatile over the past week. However, the fundamentals behind this drive have been otherwise lacking. Risk appetite was a strong catalyst at the start of this week; but market-wide sentiment was quickly tempered. Physical commodities have similarly been staid. AUDNZD buffers both risk trends and commodity activity. However, heavy kiwi event risk could incite a breakout next week.


         ·         High-level technicals are in play for AUDNZD. This pair has developed an ascending wedge formation against a nearly year-long triple top below 1.2950. Support on this pattern is called up on a rising trend that began with November’s lows. These trendline now falls at 1.25 which coincides with a notable 50% Fib and pivot level.


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


         ·         [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 1.2520, which is above today’s range low.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 1.2440 should cover a false break; but not a move to retest 1.2390. 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 (80) at 1.2600 and the second[/B][B] target will be 1.2720. [/B]


Trading Tip – The commodity bloc has seen some of the most significant trends in an otherwise active currency market. However, the standard modes of momentum (risk appetite, commodity price fluctuation, growth forecast) have been otherwise subdued. This could be interpreted as a favorable dynamic in that a fundamentally over-extended AUDNZD is due for a reversal; or unfavorable under the belief speculation is taking over for typical market factors. Technicals offer the greater source of support for this pair. The rising wedge formation has defined this pair since October/November and the long-term bias remains bullish. Fundamentally, current yields, interest expectations and growth forecasts all favor the Australian dollar. Nonetheless, mature technical patterns are often run. The suggested strategy works with the notion that the recent 300-point decline has little foundation and will be turned by dominant technical influences. However, the support in the wedge formation is somewhat loosely defined; and therefore 1.25 can be breached. As such, we have cut our position size in half and set stops wide enough for a moderate false break (realistically 1.24 is a notable pivot level in its own right and could draw the market lower). Since spot is in the vicinity of our entry, we will cancel any open orders within 24 hours.[/B]

[B]Event Risk for Australia and New Zealand[/B]

[B]Australia [/B]– Risk trends have drawn a particularly tight correlation to the Australian dollar over the past few weeks. No other major currency supports the same yield or growth prospects that this island continent enjoys. Benchmarking risk drivers in today’s market place however is difficult. After the G8 meeting this past weekend; there are few events or indicators that can promise to move broader market sentiment. On the other side of the fundamental scale, there are very few economic indicators that have the influence to generate significant Aussie dollar volatility. A second quarter industrial trends survey from Westpac due early Thursday morning could be considered a good leading indicator for a major economic sector – though this indicator has not proven itself particularly market moving in the past. Leading indicator composites like the Conference Board’s index due after the weekend are similarly lacking in impact.

[B]New Zealand [/B]– The New Zealand and Australian currencies are generally considered very similar. However, these comparisons are starting loosening. From a yield perspective, both Aussie and kiwi dollars offer the highest among the most liquid majors; but the New Zealand benchmark has dropped below its compliments and the outlook has a dovish lean with an expected hold at these levels for years. What’s more, growth between the two has diverged significantly. Last week, Australia was able to avoid a recession. New Zealand may not be so lucky. Next week, GDP and current account numbers are due for release. A poor showing here could further deflate this currency’s use as a high yielder.

                                     [B]Data for June 18 – June 25[/B]


                                   [B]Data for June 18 – June 25[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]Australian Economic Data[/B]


                                   [B]Date (GMT)[/B]

                                   [B]New Zealand Economic Data[/B]

                                                     Jun 17

                                   Westpac-ACCI Industrial Trends (2Q)


                                   Jun 21

                                   Credit Card Spending (MAY)

                                                     Jul 25

                                   Conference Board Leading Index (APR)


                                   Jun 23

                                   Westpac Consumer Confidence (2Q)




                                   Jun 24

                                   Current Account Balance (1Q)




                                   Jun 25

                                   GDP (1Q)