A fire has been lit underneath the US dollar after four days of solid selling pressure and two of tight chop. For some of the majors, this sharp increase in activity has led to significant technical developments (like the GBPUSD wedge breakout and USDCHF reversal); but for the most part, the pick has merely pulled the greenback from its respective lows and pulled back into wider ranges.
[B]How stable is an AUDUSD Range?[/B]
</p> · [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 0.8480 (Major Pivot, Double Top)[/B]
[B]-Range Bottom: 0.8180 (Fib, Trend, SMA, Range)[/B]
· There are two prominent fundamental drivers that could determine the fate of an AUDUSD range: risk appetite and the singular efforts of the US dollar. Risk appetite could end up being the more influential theme; but it also happens to be harder to define what can set it off. Elsewhere, we have seen the dollar take up a hearty rally against most of its counterparts over the past 24 hours. [Tomorrow’s GDP release](http://forexforums.dailyfx.com/trading-news-live-coverage-dailyfx-analysts/96907-trade-news-live-us-gdp-2q-p-august-27-2009-08-15-est.html) could add momentum to this move.
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· It is difficult to miss the steady, bullish bias AUDUSD has developed alongside the general recovery in underlying sentiment since March. In recent months though, a consistent rally has developed significant ranges along the way. This will actually help to prevent any sharp reversals. Support is built in a short-term trend, Fib and 50-day SMA at 0.1880.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Support is rising, but not fast enough to close a buffer in an entry at 0.8210. [/B]
· [B][U]Stop[/U][/B][B]: The floor on this pair is actually a zone; but a stop of 0.8130 covers last week’s low. 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 0.8210 and the second target is set to 0.8130. [/B]
[B]Trading Tip[/B] – A fire has been lit underneath the US dollar after four days of solid selling pressure and two of tight chop. For some of the majors, this sharp increase in activity has led to significant technical developments (like the GBPUSD wedge breakout and USDCHF reversal); but for the most part, the pick has merely pulled the greenback from its respective lows and pulled back into wider ranges. However, it would not be difficult to produce positive breakouts by keeping the dollar’s momentum. This increases the risk on the majors; and for pairs like AUDUSD, we further have to consider the influence of risk trends. With equities stalling this week, the chances for a market-wide reversal in investor confidence are growing. For most of the majors however there is buffer room for some follow through on a dollar advance or pull back in risk appetite. AUDUSD has nearly 100 pips of space to work with before it reaches support around 0.8175/200. This will help to absorb some shock [should Thursday’s US GDP release surprise](http://www.dailyfx.com/story/trading_reports/trading_news_reports/EUR_USD__Trading_the_U_S__GDP_1251301829611.html). Our strategy looks for entry very close to the aforementioned support; but does not look to place a wide stop to account for volatility near this level there isn’t decent enough profit potential and a breakdown can develop quickly. Our first target can be reached within an average range and the second objective doesn’t call for too much of the range up to 0.85. We take off all open orders by Friday as conditions are in flux.
[B]Event Risk for the Australia and the US
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[B]Australia [/B]– Risk appetite is the primary concern for Aussie dollar traders this week and for the immediate future. Though the currency can source much of its strength through its own fundamental stability and yield advantage; further appreciation requires a demand for the nation’s assets. Otherwise, a flight to safety may lead to repatriation of funds or otherwise to highly liquid and secure securities. In the meantime, the economic docket will attempt to jumpstart volatility on its own. We are in a build up to next week’s major event risk: the combination of the RBA rate decision and 2Q GDP release. Avoiding a technical recession in the first quarter, we will now look to see whether the economy will actually expand going forward rather than simply stabilize. The rate decision has just as much potential for market impact. Officials have signaled the turn in their policy stance; but timing is still up in the air.
[B]US [/B]– The dollar has jumped higher; but this move was generated from neither specific event risk nor a shift in investor sentiment. Therefore, the follow through in this move is questionable. However, we do have fuel in the calendar over this coming week to help feed momentum or otherwise reverse the currency’s fortune. Through the near-term, top event risk is the first revision of 2Q GDP. While this is the second reading, it is open to significant alterations thanks to significant refinement through component data. Consumer spending and capital investment figures could dramatically alter the forecast for growth in the second half of the year and beyond. Other notable indicators are on deck including the ISM manufacturing report, personal income and spending among others; but this will all be colored by expectations for next Friday’s NFPs. Considering one of the primary, leading indicators for the economy, it will define forecasts.
[B]Data for August 27 – September 3 [/B]
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[B]Data for August 27 – September 3[/B]
[B]Date (GMT)[/B]
[B]Australian Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Aug 27
Private Capital Expenditure (2Q)
[B][/B]
Aug 27
GDP (2Q P)
Aug 31
Company Operating Profit (2Q)
[B][/B]
Aug 28
Personal Spending (JUL)
Sep 1
RBA Rate Decision
[B][/B]
Sep 1
ISM Manufacturing (AUG)
Sep 1
Gross Domestic Product (2Q)
[B][/B]
Sep 2
FOMC Meeting Minutes
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>[/I]