The threat to market activity with tomorrow’s US GDP report is substantial. Not only does this indicator threaten to dramatically impact the dollar; but it further has underlying implications in risk appetite, which means nearly every currency pair will feel the shock of a surprise release.
[B]Why Would AUDNZD Hold a Range?
• Levels to Watch:
-Range Top: 1.7740 (Fib, Trend)
-Range Bottom: 1.7475 (Fib, Trend, Pivot)
• [/B]Through most of July, AUDNZD was stalled in a tight range. However, underlying fundamental trends were running on high as earnings season sparked an undeniable shift in risk appetite. This break in cause and effect suggests that, while there are disparities between the economic and financial health of the two economies, the currency pair is otherwise buffered from the storm. However, as can be seen [yesterday, event risk can still have impact](http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/New_Zealand_Dollar_Tumbles_Following_1248902750318.html).
• Volatility over the past 24 hours has been exceptionally high. This has lead to many, small technical levels to be overrun; but the spark for this shock was highly unique. Follow through on this already expansive move will be difficult to extend. However, momentum is the essential component with trend, Fib and pivot resistance in play.[B]
[I]Suggested Strategy[/I]
• [U]Short[/U]: As AUDNZD has held its highs, entry orders will be placed at 1.2660.
• [U]Stop[/U]: An initial stop of 1.2720 is purposefully close so as to cover only a short-term range. To secure profit, move the stop on the second lot to breakeven when the first target hits.
• [U]Target[/U]: The first objective equals risk (60) at 1.2600 and the second target is set to 1.2470.
[/B]
[B]Trading Tip[/B] – [B]The threat to market activity with tomorrow’s US GDP report is substantial. Not only does this indicator threaten to dramatically impact the dollar; but it further has underlying implications in risk appetite, which means nearly every currency pair will feel the shock of a surprise release. For range traders, finding the pair that is least likely to respond to this unpredictable event risk is key. However, our strategy (though it does follow a pair that is relatively risk neutral) is not focused on minimizing this impending release. Our AUDNZD short setup is looking to take advantage of an extraordinary rally that followed the shift in the RBNZ’s policy stance after its rate decision (Governor Bollard suggested the benchmark would remain low until the later part of 2010 and that the currency was stifling a recovery). This was certainly a bearish outcome for the kiwi; but not wholly unexpected considering the country’s economic situation. From the larger chart pattern, we can see a definable wedge formation which establishes a range. However, we are fighting heavy, short-term momentum. Therefore, we have set a relatively tight stop and are looking at a very short time frame for setting up a position. We will cancel all open orders well before the [US GDP number crosses the wires](http://www.dailyfx.com/story/bio1/EUR_USD__Trading_the_U_S__Gross_1248970725986.html) in the morning hours of the New York session. If we are in a position during the release, we will move the stop up just prior and watch price action closely.
[/B]
[B]Event Risk for Australia and New Zealand[/B]
[B]Australia – [/B]The Australian dollar has closely tracked the ups and downs of risk appetite over the past month; and the currency will likely do so going forward as a renewed focus on economic expansion elevates the nation’s ability to avoid recession. The duel benefits of a comparatively strong economy and a hawkish timing to the eventual, positive shift in interest rates will be fully exercised next week. Through growth trends figures, private credit figures, housing activity and employment activity will mark the critical readings for reasonably forecasting economic activity through the key domestic sources of growth. For short-term volatility, the employment change undoubtedly has the potential for impact. Acting hand in hand with growth expectations, interest rates are the ultimate reward for global market participants. While there is little chance of a rate hike at the next meeting, commentary that follows the event and the quarterly policy statement due two days later will shape speculation for the ‘when’ that has been attached to forecasts. [B]
New Zealand –[/B] It has been a turbulent week for the New Zealand dollar; but the fundamental catalyst for the tremendous volatility may have been fully exercised this past week. After RBNZ Governor Bollard’s warning that interest rates will likely be held until the second half of next year and the door was to be left open to further cuts; the hopes that the kiwi would join the ranks of the vaulted Australian currency in the early shift in policy have been abandoned. However, now we will see the market keep a closer eye on possible intervention and clear signs of economic activity that warrant policy changes to facility to a return to positive growth. Second quarter employment change and wages will satisfy this ongoing fundamental contemplation as well as short-term volatility.
