Risk trends are starting to pick up; but without a clear cut fundamental driver or even direction through market sentiment, the activity threatens range boundaries with the potential for false breakouts. AUDNZD is naturally sheltered from much of the spurious shifts in sentiment that happen from day to day; but the economic and financial disparity between the two retain a link to this most common of economic drivers.
[B]Why Would AUDNZD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.2680 (Trend, Fib)[/B]
[B]-Range Bottom: 1.2375 (Trend, Fib, Range Low)[/B]
· Though we are now nearly a month into a bearish correction in market sentiment, demand for yield has seen a positive bump over the past 24 hours. Is this the beginning of a significant rebound or merely a blip as declines develop? The answer to this question is fundamental to most trades. For AUDNZD, the sense of risk is dampened and scheduled event risk is spotty. However, sentiment driven breakouts are a frequent risk.
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· Technicals are very mature for AUDNZD. We are still keeping track of the major triple top produced just above 1.29 back in May. The pullback from these highs has been choppy as the market looks to rectify its long-term, bullish bias. With a notable 61.8% Fib and range of lows from the past two months at 1.2375, support is clear and stable.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U]: Entry orders will be placed at 1.2410 - well above today’s lows.[/B][B][/B]
· [B][U]Stop:[/U] An initial stop of 1.2330 should hold most false breaks the market reverses in due time. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B][B][/B]
· [B][U]Target:[/U] The first objective equals risk (80) at 1.2490 and the second target is set to 1.2570. [/B][B][/B]
[B]Trading Tip [/B][B]– Risk trends are starting to pick up; but without a clear cut fundamental driver or even direction through market sentiment, the activity threatens range boundaries with the potential for false breakouts. AUDNZD is naturally sheltered from much of the spurious shifts in sentiment that happen from day to day; but the economic and financial disparity between the two retain a link to this most common of economic drivers. It is further comforting however that scheduled event risk is relatively light and spread out (a nest of indicators released with similar surprises have a greater chance at forcing a breakout). However, the most promising aspect of a range-based setup for this commodity cross is the state of technicals. Long-term trends are at stake with recent price action. Just like the third attempt to run 1.30 and on to new nine year highs failed back in May, we are now coming on support that defines this pair’s general bias going back to October (or 2005 depending on what you consider to be a clear trend). Our strategy works with the bias and is further backed by a clear confluence of support. The stop is set wide enough to avoid most false breakouts while keeping with the general trend and both targets are within the range of two days. We will cancel all open orders before liquidity drains for the weekend.[/B]
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[B]Event Risk for Australia and New Zealand[/B][B][/B]
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[B]Australia – [/B]In comparison to its counterparts among the majors, the Australian dollar holds the best fundamental prospects. It was no small feat that the economy was able to avoid a contraction in first quarter growth and thereby put off the title of recession. Going beyond the label of economic stagnation, Australia has enjoyed strong domestic trends and maintained its vital exports to help avert a localized financial crisis and dramatic reduction in credit. The benefit of these promising conditions is a relatively high benchmark lending rate (held at 3.00 percent) that trickles down into returns through national assets. This puts the Australian economy at the forefront of a potential global recovery – but therein lies the dependency on the broader world for performance. This is why the Aussie dollar will not be able to fully detach from trends in risk appetite. As for event risk, the docket is relatively light for the coming week. The NAB business confidence number for June is the only figure with true economic implications; yet it has little precedence for impact.
[B]New Zealand – [/B]New Zealand is everything that Australian exemplifies minus most of the latter’s positive attributes. A heavy dependency on exports finds its demand from Asian trade partners. More poignantly, New Zealand’s economy is heavily linked to its bigger brother, Australia. However, from there, domestic activity is depressed and highly volatility. The island nation is struggling with financial markets and is seeing capital flows drying up due to investors’ caution and a tumbling interest rate. On the other hand, when optimism surrounding global financial and growth trends improves, New Zealand is positioned to reap the greatest benefit. Looking at economic data due, retail sales, business sentiment and consumer-based inflation makes for a market moving concentration.
[I]Questions? Comments? Send them to John .[/I]