While volatility may have died down and short-term reversals flagged trend development this week; risk in range trading is still inordinately high. Boundaries on recent congestion patterns are relatively flimsy; and the quiet that has developed in fundamental circles could easily be catalyzed should some unknown event spread a sense of urgency in risk appetite or aversion.
[B]Why Would AUDNZD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.2935 (Triple Top)[/B]
[B]-Range Bottom: 1.2380 (Trend, Fib, Pivot)[/B]
· Risk appetite has settled over the past week; but the propensity for volatility is still there. With deep economic ties between the Australian and New Zealand economies, the potential for discounting one currency over the other on the basis of growth potential is dampened. Yield factors, on the other hand, is a different story. The Aussie dollar already holds a 50bps advantage over the kiwi; and the RBNZ decision tomorrow could expand that gap.
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· Congestion has been rather ill-defined over the past few months; but the underlying force is there nonetheless. The long-term bias is still bullish – with a recent reversal on a notable pivot and rising trend extending the market’s direction for yet another bullish swing. However, resistance in the long-term triple top at 1.2935/75 is as clear as can be.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 1.2865 to allow for a wider stop.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.2985 will allow little volatility on a retest of the long-term triple top. 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 (120) at 1.2745 and the second[/B][B] target will be 1.2525. [/B]
[B]Trading Tip[/B] – While volatility may have died down and short-term reversals flagged trend development this week; risk in range trading is still inordinately high. Boundaries on recent congestion patterns are relatively flimsy; and the quiet that has developed in fundamental circles could easily be catalyzed should some unknown event spread a sense of urgency in risk appetite or aversion. For those willing to brave the risk and forecasting an extended period of congestion; we are following AUDNZD. From a technical point of view, this pair is set within a long-term rising wedge formation; but there is little pressure for a breakout as there is still over 500 pips to maneuver. And, though such a pattern typically ends in a bullish breakout; resistance in a long-term triple top is so prominent that most poorly-conceived rallies will fizzle as the level approaches. We are still a significant ways off from absolute resistance; but this works to our advantage considering event risk. With an RBNZ rate decision due Wednesday evening; we are allowing for room to run should the policy authority come off dovish before, which could help trigger entry while losing momentum before a breakout becomes too risky. Our setup is heavily dependent on the rate decision; so we will cancel all open orders by Thursday or should spot hit 1.27 before we are entered.
[B]Event Risk for Australia and New Zealand[/B]
[B]Australia[/B] – The Australian dollar may be the best positioned economy among the G10. Should the recovery in risk appetite continue, the Aussie dollar will draw capital with the highest benchmark yield among its global counterparts. At the same time, should sentiment sour and investors seek safety in a stable economy and financial system; Australia has maintained growth and credit conditions are still robust thanks to relatively small exposure to the financial collapse in the Western world as well as relatively modest counterparty risk among local lenders. However, skeptical market participants are still waiting for any sign that the economy is not as healthy as the currency and data have suggested. Data over the coming week will help establish a benchmark for expectations. First quarter housing construction, employment and the RBA minutes will present a mishmash of market-moving fundamental data.
[B]New Zealand [/B]– Native event risk is exceptionally dense for the New Zealand currency over the next week – though the market will likely still look for direction from broader risk trends. Forecasting which indicators or events can alter such a broad and encompassing driver is difficult as speculating its ultimate direction. However, policy efforts (and success) in the US, UK and Europe seems to be the most consistent guide to such activities recently. For short-term volatility and directing the kiwi’s place in the risk web, we have a few ky indicators. Most noteworthy is Wednesday’s RBNZ rate decision which is expected to pass without a change. This would follow the general pace of sentiment recently; but conflict with Governor Bollards vow to revive the economy. Contributing to the broader view of growth, the manufacturing reading for the first quarter will monitor the health of a vital sector. The GDP numbers are due on the 25th/26th. More timely, but smaller in scope, the retail sales and services sector activity reports could draw some volatility.
[B]Data for June 10 – June 17[/B]
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[B]Data for June 10 – June 17[/B]
[B]Date (GMT)[/B]
[B]Australian Economic Data[/B]
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[B]Date (GMT)[/B]
[B]New Zealand Economic Data[/B]
Jun 11
Consumer Inflation Expectation (JUN)
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Jun 10
RBNZ Rate Decision
Jun 11
Employment Change (MAY)
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Jun 11
Retail Sales (APR)
Jun 16
RBA Board Minutes
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Jun 14
Performance Of Services (APR)
Jun 17
Dwelling Starts (1Q)
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Jun 14
Manufacturing Activity (1Q)
[I]
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>. [/I]