GBPAUD Presents the Better Short-Term Range Despite Natural Volatility

Once again, we are starting the week with the sense that risk appetite could face a momentous shift; yet once again, the elements for a breakout are already falling apart. In the meantime, we have seen many pairs produce false breakouts (EURJPY for example) to invalidate clear range scenarios.

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

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

         [B]-Range Top:       2.0875 (Pivot, Fibs, SMA)[/B]

         [B]-Range Bottom: 2.0325 (Range Low, SMA, Fib)[/B]

         

         ·         There are more than a few highlights on the Australian and UK economic dockets; but these indicators may ultimately have little overall impact on GBPAUD price action. Rate decisions from both are expected to result in no change (and an RBA surprise would likely go in our favor), while more routine reports will simply offer a reading on the general health of the economy. The real concern behind this pair is general risk trends.

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         ·         With so many currency pairs (not to mention other asset classes) showing the initial signs of breakouts or reversals, it is very important to find a pair that has established congestion through price action and will not readily produce false moves. GBPAUD has been very consistent and the clear presence of support at 2.0300/50 offers a technical backdrop.   

         

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

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         ·         [B][U]Long[/U][/B][B]: Half-sized entry orders will be placed at 2.0370, which is within the recent range of lows.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 2.0270 is not very wide considering volatility; but necessary for risk. 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 (100) at 2.0470 and the second[/B][B] target will be 2.0630. [/B]

                         [B]Trading Tip[/B] – Once again, we are starting the week with the sense that risk appetite could face a momentous shift; yet once again, the elements for a breakout are already falling apart. In the meantime, we have seen many pairs produce false breakouts (EURJPY for example) to invalidate clear range scenarios. GBPAUD fills our needs uniquely not only through its ongoing congestion but by avoiding many of the false breakouts that have plagued other pairs. This setup is not without its drawbacks. High-level volatility means a true breakout can develop quickly and temporary spillover (not necessarily a false break) is highly probable. The consistency of recent support and natural bias from the market over the past two months certainly improves prospects; but further adjustments are necessary. Our strategy keeps stops relatively tight (with a modest buffer over the recent lows) – and yet we still look to reduce risk by cutting the position size in half. Keeping track of potential catalysts for breakout scenarios, scheduled event risk is a concern. There is an RBA rate decision tonight and BoE announcement Thursday among other market movers. However, the other data just feeds into broader, more stable economic forecasts; and surprises from the monetary policy meetings would most likely favor our long side bias. We will cancel all open orders before the BoE’s decision this Thursday.

[B]Event Risk for UK and Australia[/B]

[B]UK [/B]– Taking a look at the UK economic docket, there are more than a few releases and events scheduled over the coming week that have proven themselves market-worthy in the past. However, whether they will spark volatility from the pound this time around is debatable. The release with the most history as a volatility driver on the calendar is the Bank of England’s rate decision. Recently though, the central bank has run out of room to lower its benchmark and they have shown an inclination towards throttling back their unorthodox efforts towards policy easing. No notable adjustments to their current pace are expected. Other releases are expected to contain more of a surprise factor; but their impact on price action is questionable. Industrial production, trade, the RICS house price balance and Nationwide Confidence survey are all important. However, each is feeding into a very stable and broad forecast for growth.

[B]Australia[/B] – There are more than a few economic releases for the Australian dollar that should command fundamental traders’ attention; but the real concern will remain risk appetite. The Aussie dollar stands as the leader for growth and yield among its liquid counterparts and this status has put it on an extreme end of the risk spectrum. What’s more, the RBA’s recent turn to a more neutral stance over the past few months has alleviated lifted any speculation that the currency’s relationship to sentiment could fluctuate as there was so much room for the economy to deteriorate and rates to deflate. Beyond the policy group’s meeting, there are a few notable indicators popping up on the radar. As a leading and straightforward growth reading, the employment gauge has the greatest presence. Consumer and business confidence figures may also direct activity as well.

                                      [B]Data for July 7 – July 14[/B]

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                                   [B]Data for July 7 - July 14[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]UK Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]Australian Economic Data[/B]

                                                     Jul 7

                                   Industrial Production (MAY)

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                                   Jul 7

                                   RBA Rate Decision

                                                     Jul 7

                                   Nationwide Consumer Confidence (JUN)

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                                   Jul 8

                                   Westpac Consumer Confidence

                                                     Jul 9

                                   Visible Trade Balance

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                                   Jul 9

                                   Employment Change

                                                     Jul 9

                                   BoE Rate Decision

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                                   Jul 13

                                   NAB Business Confidence (JUN)

[I]Questions? Comments? Send them to John .[/I]