[B]My picks:[/B] Pending AUDNZD Breakout (Bearish Bias)
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week
Heading into the end of last week, the demand for yield was stuttering. The bias behind the market was still clearly towards risk appetite; but the fundamentals for continuation was easing. With few key indiciators threatening to spark an unbalancing in sentiment, I was expecting AUDCAD to hold with its dominant technical structure - which put a trendline right below the last Friday’s close. However, with the extended holiday weekend, speculators wouldn’t attempt to hold up technical formations and instead looked for relief with a drop below 0.8775 and promptly hit my relatively tight stops. And, considering there was little momentum to support this initial move (though there is a telling range of resistance now set near former support around 0.88), I decided to hold back from flipping my bias and diving into the break.
Conditions seem very different this week. All the commodity-based majors have been catalyzed into major breakouts and in doing so, fueled significent trends. However, this clear buying of commodity currencies does not seem so strong in the crosses - suggesting the momentum in this impressive move comes predominately from weakeness in the US currency. If this is the case, the plunge in USDCAD and rallies for AUDUSD and NZDUSD are open to sharp reversals as the flucation in risk appetite is extremely fickle through the greenback. To try and avoid the risk implications of a yield intensive pair, I will defer to AUDNZD. This pair has held a band of congestion between 1.2950 and 1.25 for six weeks. Recent volatility has been spurred by confirmation that New Zealand’s debt rating was not at risk of a second downgrade this year; but this is hardly a trend defining factor for the currency. The island nation is expected to suffer an ongoing recession and the RBNZ is projected to extend its rate cuts going foward. On the other hand, we have the Australian dollar which is backed by one of the strongest economies in the developed world and its target rate is expected to be held at 3.00 percent in next week’s rate decision (which could be a very bullish sign for the Australian dollar). I will also be watching the Aussie 1Q GDP release, as that can easily produce a major move. As for a position, I will follow the rising trend that now coincides with the pivot and 50% Fib around 1.2485/500. My entry on two orders will be set at 1.2520 (to account for this pairs considerable spread). Initial stops will be placed at 1.2430 and the first target willl equal risk at 1.2610. The second objective will be much more aggressive (fundamentals suggest the Australian dollar is much stronger than the New Zealand through the long-term) at 1.2820. When the first target is hit, I’ll trail the stop on the second half of the trade to break even.