As we have said over the past few days, current market conditions are not at all favorable for range trading. Volatility has surged market wide producing a number of breakouts, the winds of risk trends have kicked up, and the global calendar has filled out with a number of key rate decisions. With so much going on, few charts are carving reliable ranges.
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[B]Trading Tip – [/B]As we have said over the past few days, current market conditions are not at all favorable for range trading. Volatility has surged market wide producing a number of breakouts, the winds of risk trends have kicked up, and the global calendar has filled out with a number of key rate decisions. With so much going on, few charts are carving reliable ranges. AUDCAD happens to be on of the few pairs that has an appealing range. And, what’s more, though there is considerable event risk from both the Australian and Canadian economies, our long position would be aligned with both the dominate technical trend and the underlying interest rate outlook. Forecasts suggest the RBA will hike a quarter point to 7.25 early Tuesday while the BoC lowers its benchmark a quarter to 3.75 later the same day. However, despite our promising positioning, there is still considerable risk in taking a trade with so much market moving data. Cautious traders should avoid range trades all together. To reduce risk on this trade, we will only take half our usual position to lower our wide risk. Also, we will cancel any open orders by Thursday or should spot hit 0.9225 before we are entered on our long trade.
[B]Event Risk Australia and Canada[/B]
[B]Australia [/B]– Australian economic event risk will pick up in the days ahead, but we hope that bullish Aussie data will be enough to lift the currency against its lower-yielding Canadian namesake. Indeed, markets broadly expect that the highly-anticipated Reserve Bank of Australia rate decision on March 3 will bring a further 25 basis points in yield to the Aussie. At the same time, the Bank of Canada is forecast to cut its interest rates by the same amount on March 4. Given such divergent monetary policy regimes, we feel that medium term risks remain to the topside for the AUDCAD. Yet range traders should watch out for key surprises out of Retail Sales and the RBA Decision on the 3rd, with the subsequent days’ GDP and Trade Balance numbers likewise to cause intraday volatility on the AUDCAD.
[B]Canada [/B]– Canadian economic event risk is similarly elevated in the days ahead, but we hope that bearish results out of Canada will be enough to send the AUDCAD higher in the days ahead. Range traders should nonetheless be mindful of the fact that any particularly sharp surprises out of GDP, the Bank of Canada Rate Decision, or Net Change in Employment reports could easily derail our proposed range trade. As such, we urge a modicum of caution in setting position size and monitoring the position.
Noticing any other strong ranges in the market? Share them with your fellow traders on the DailyFX forum!
[I] [B]Data for March 3 – March 10[/B]
[B]Data for March 3 – March 10[/B]
[B]Date[/B]
[B]Australian Economic Data[/B]
[B]Date[/B]
[B]Canadian Economic Data[/B]
Mar 2
Company Operating Profits (4Q)
Mar 3
Gross Domestic Product (4Q)
Mar 3
Retail Sales (JAN)
Mar 4
Bank of Canada Rate Decision
Mar 3
RBA Rate Decision
Mar 6
Ivey PMI (FEB)
Mar 4
Gross Domestic Product (4Q)
Mar 7
Net Change in Employment (FEB)
Mar 5
Trade Balance
Mar 10
Housing Starts (FEB)
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Written by John Kicklighter and David Rodriguez, Currency Analysts for Dailyfx.com[/I]
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To contact David or John on this or other articles that they have aurthored, email at <[email protected]> or <[email protected]>[/I]