Short-term event risk and the potential development of long-term trends is a threat for nearly every pair in the currency market at this point. These conditions will impart a heightened level of risk that will have to be accounted for by strategy and timing. Scanning the market for a strong range, there are few opportunities that have the proper fundamental and technical build. AUDCHF has an attractive technical setup; but the waves of data scheduled to cross the wires over the coming week may create problems.
Why Would AUDCHF Hold a Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 0.8450 (Fibs, Triple Top)[/B]
[B]-Range Bottom: 0.8050 (Former Resistance, Fib)[/B]
· Of the two economic dockets behind AUDCHF, the Australian listings clearly provide the greater level of event risk. And, though the most explosive indicator that the economy had to offer ([RBA rate decision](http://www.dailyfx.com/story/special_report/special_reports/Australian_Dollar_Rises_as_RBA_1241499567143.html)) has already come and gone, there is still a threatening mix on the horizon. Retail sales, trade and employment data are all critical readings for growth and well-known market movers. Other notables are the ECB and general risk trends.
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· AUDCHF price action is setting up like so many other liquid majors and thinner crosses. A potentially trend-defining breakout from last month completely lost its drive shortly after the technical spark was made. However, the move has [neither been reversed nor revitalized](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Australian_Dollar_Crosses__Breakout_Trades_1241204253155.html) at this point. A triple top and long-term Fib around 0.8450 is the line in the sand.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: Entry orders will be placed at 0.8420 to provide an aggressive entry for risk / reward.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 0.8480 is wide enough to cover the triple top with a modest cushion. 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 (60) at 0.8360 while the second[/B][B] target is set to 0.8240. [/B]
[B]Trading Tip[/B] – Short-term event risk and the potential development of long-term trends is a threat for nearly every pair in the currency market at this point. These conditions will impart a heightened level of risk that will have to be accounted for by strategy and timing. Scanning the market for a strong range, there are few opportunities that have the proper fundamental and technical build. AUDCHF has an attractive technical setup; but the waves of data scheduled to cross the wires over the coming week may create problems. Just last month, this pair was set on pace for what could have been a clear sign of a revived trend. However, the bottom dropped out of momentum; and instead we have been left with sharp reversals just beyond technically important levels that have fully undermined medium-term expectations. The basic strategy follows technicals. Though there is a general, bullish bias still holding the market; a recent triple top and long-term Fib at 0.8450 helps to put definition on the market’s lack of direction. Event risk is a different story. We have a heavy round of event risk over the next 48 hours from the Australian docket that can drum up enough activity to force a breakout. There is little we can do to avoid this wave; so our position has to limit risk to the speculative nature of the setup. An aggressive entry, notional tight stop and easily reached first target will limit risk. To further reduce exposure, the risk averse could cut the position size in half. This position should be active before the employment report; otherwise, we will cancel all open orders.
Event Risk for Australia and Switzerland
Australia – The Australian dollar is a rare find in today’s currency markets. Not only is the economy proving itself to be unusually resilient to the global crisis; but its benchmark lending rate has been able to fight the dovish current to maintain a significant yield advantage against nearly every one of its liquid counterparts. The RBA rate decision was the most ominous piece of event risk on the docket this week; but the outcome would ultimately fall in line with expectations for no change. This, however, does not mean preclude action later on. Early in the forthcoming Asian session, the government will release the March retail sales data – consumer spending is a key barometer for general growth at this point (especially with export demand so severely depressed). The following day, employment statistics and the RBA’s quarterly policy assessment will likely fill in for the price action the market missed with today’s rate decision. The labor number is likely good for immediate volatility, while the bank assessment can influence long-term growth and policy forecasts.
Switzerland – As is often the case, the Swiss franc will play the counterpoint to its currency pairing. For AUDCHF, the currency will naturally fall into the role of safe haven – though how well it holds depends on the intensity of risk aversion and appetite prevailing in the market. In fact, there is the potential for an extreme shift in sentiment over the next few days through the Federal Reserve’s Stress Test results. Depending on the assessment and suggested solutions from the US Government, this could unnerve the financial markets. From the Swiss calendar, employment and inflation data has a poor track record for encouraging activity.
[B]Data for May 6 – May 13[/B]
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[B]Data for May 6 – May 13[/B]
[B]Date (GMT)[/B]
[B]Australian Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
May 6
Retail Sales (MAR)
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May 7
Consumer Price Index (APR)
May 7
Employment Change (APR)
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May 8
Unemployment Rate (APR)
May 7
RBA Quarterly Monetary Policy Statement
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May 11
NAB Business Confidence (APR)
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Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>.