Event risk over the weekend and heading into next week is high. This is particularly true for those currency pairs with a particularly high sensitivity to market sentiment. As a high-yielding currency pair that is backed by the top safe haven US dollar, AUDUSD will be exposed to potentially high levels of fundamentally-based volatility. Therefore, a range setup for this pair comes with significant risk.
[B]Why Would AUDUSD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 0.7250 (SMA, Fib)[/B]
[B]-Range Bottom: 0.6950 (Fib, Pivot)[/B]
· There is substantial fundamental risk hanging over the market and few currencies or pairs will be able to effectively avoid it all together. AUDUSD has greater exposure to the scheduled and unscheduled events over the coming week than many of its counterparts. This pair is highly correlated to risk trends due to the wide yield differential and the very divergent forecasts for economic activity and financial health for the two countries.
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· Just a week ago, AUDUSD was finally forging developing a bullish breakout on a five month old range. The surprise reversal broke bullish momentum and sucked the wind out of the development of a new upside trend. Now we are once again coming on the 50% Fib resistance at 0.7250 and the 200-day SMA is there to back it.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half-sized entry orders (or smaller) will be placed at 0.7225 to allow for a reasonable stop.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 0.7345 covers last week’s highs should nearby resistance be pushed. 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 0.7105 while the second[/B][B] target is set to 0.6805. [/B]
[B]Trading Tip [/B]– Event risk over the weekend and heading into next week is high. This is particularly true for those currency pairs with a particularly high sensitivity to market sentiment. As a high-yielding currency pair that is backed by the top safe haven US dollar, AUDUSD will be exposed to potentially high levels of fundamentally-based volatility. Therefore, a range setup for this pair comes with significant risk. At the same time, active markets and clear technicals could also work in our favor for a trade setup that plays out quickly. Clearly, in this situation, a cautious strategy is essential. Our strategy calls for position to be reduced by half at least. Furthermore, we are looking for an aggressive entry that allows for a relatively wide stop that covers the false break on last week’s swing high. As usual, the first target equals risk, which is certainly within reach of a single day’s range. Coupled with our standard policy to trail the stop on the second half of our position to break even after the first objective has been met, this should improve the prospects of the trade. Regardless of how data plays, we should find clear direction rather quickly come next week. Therefore, we will close any pending orders by Tuesday’s close (well ahead of US GDP) or should spot hit either 0.7275 or 0.7025 before entered.
[B]Event Risk for Australia and US[/B]
[B]Australia [/B]– Though its own fundamental calendar poses only a minor threat to price action, the Australian dollar still has the potential to be one of the most active currencies next week. Holding one of the highest yields of the G10 and considering one of the strongest economies in the industrialized world, the Australian dollar has the most to lose should the mood term pessimistic and fearful yet again. Alternatively, should optimism rise and the demand for yield return, the commodity currency is perhaps the best positioned unit in the market. Interceding on this perfect role of cause and effect however; we also have to monitor the influence of local, economic data. Not only can the round of event risk drive short-term volatility; it could also alter the Aussie dollar’s position in the yielding and recession rankings. Manufacturing activity, business confidence, housing, lending and leading growth numbers could alter the market’s bias.
[B]US[/B] – The US dollar is perhaps the most exposed to fundamental flows next week of any other major currency. A constant and ill-defined threat to price action, broader risk trends could encourage demand for the safe haven or even possibly displace the currency’s position as a harbor for idle capital. Over the weekend, the G20, World Bank and IMF meetings in Washington could produce believable policy initiatives that could definitely improve the outlook for global growth and financial health. However, merely taking stock of the pace of the recession may actually deflate the steady rebound in confidence that has built up over the past six weeks. Another undefined driver could be the ongoing 1Q earnings releases. The Fed’s language in its recent statement suggests at least one bank failing to meet its requirements. And, in the absence of this uncertain risk, there is always 1Q GDP and the FOMC decision.
[B]Data for April 26 – May 3[/B]
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[B]Data for April 26 – May 3[/B]
[B]Date (GMT)[/B]
[B]Australia Economic Data[/B]
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[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Apr 29
Conference Board Leading Index (FEB)
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Apr 28
Consumer Confidence (APR)
Apr 30
HIA New Home Sales (MAR)
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Apr 29
GDP (1Q A)
Apr 30
NAB Business Confidence (1Q)
[B][/B]
Apr 29
FOMC Rate Decision
Apr 30
AiG Performance of Mfg Index (APR)
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May 1
ISM Manufacturing (APR)
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]