Forex trading store

John Kicklighter

 

How stable is the AUDCAD Range?
•    Levels to Watch:
-Range Top:       0.9530 (Fib, Trend, SMA, Pivot)
-Range Bottom: 0.9200 (LT Fib, Pivot, 200 SMA)
•    While broad risk trends certainly have an influence on AUDCAD, the pair’s response to the whiles of optimism is far more temperate than most other pairs. Distancing ourselves as far as possible from such a fickle and influential driver is a big step in improving stability for a range setup. However, this is not to mean that all risk has been offset. Cross market flows can clearly leverage volatility; and a dense economic docket could aid a breakout.
•    The current technical pattern for AUDCAD doesn’t look like the traditional range. Instead of a series of evenly spaced swing highs and lows, we are looking at recent momentum and a test of former support from the other side of the market. Resistance is actually a range around 0.9575/25. If this holds, it would further a significant reversal pattern.
Suggested Strategy
•    Short: Though there is notable risk, we will place entry on a full-size position at 0.9520.
•    Stop: It is important to place a stop above our resistance zone. The 0.9590 level should do. To secure profit, move the stop on the second lot to breakeven when the first target hits.
•    Target: The first target is one-and-a-half times risk at 0.9405 (105). The second is 0.9300.

Trading Tip – When attempting to develop a short- or medium-term range trade, it is essential to remove as much fundamental risk as possible. For our AUDCAD setup today, the risk from a pervasive driver is diminished through virtue of the individual currency’s standing on the risk spectrum. Trends in underlying sentiment can easily sweep entire markets given the right shift in mood. However, there is a varying degree of correlation between this exogenous catalyst and the many currency pairs out there. For AUDCAD, both the Australian and Canadian dollars are treated as high yield currencies (even though the latter certainly trails in this aspect) and their respective growth forecasts are bolstered by the fact that they are major resource producers for the world’s largest economies. This is not to mean that there is no risk from risk trends. Given a clear and strong drive in risk appetite or aversion, the Aussie dollar will surely step in as the carry currency. Barring such an aggressive move though, technicals offer a strong platform for a near-term range that may further a more lasting reversal pattern. After peaking and producing a trend break, the doors were opened to a meaningful trend change. And, though recent momentum raises some concern, the general bias and presence of dense resistance offers a strong backdrop against considerable levels of pressure. We further improve our strategy through positioning. Our entry is well within reach, our stop is above the zone of resistance and the first target is within sight. We will cancel all open orders before Friday close.

Event Risk for Australia and Canada

Australia – Risk appetite has leveled off over the past few months, and this has left the Australian dollar in somewhat of a lurch. The currency still maintains the highest benchmark rate of its major counterparts and its current level of growth is certainly pacing the industrialized world; but its speculative rate of improvement is slowing and the outlook for other currencies are starting to notably improve. There is a level of fair value in the Aussie dollar’s exchange rate; and if its fundamental prospects leveled off now, it would probably lose ground as the rest of the world played catch up. This leverages the importance of either a decisive drive in underlying risk appetite (which will overwhelm any nuanced changes in the currency’s standing in the risk spectrum) or heightened activity on the economic docket. There is a solid round of event risk on the Australian docket; but the most pressing data doesn’t come until next week: the employment change. Other indicators certainly have fundamental impact; but the threat to volatility is far more reserved.

Canada – The economic docket for the Canadian dollar is thick with market-moving releases. The most threatening indicator on deck is also the most immediate for release. With good reason, the Canadian labor statistics are often overshadowed by their American counterpart; but with a notable release, the data can certainly drive the crosses towards potential breakouts. On the other hand, such surprises aren’t commonplace. As for next week, the 4Q credit and business gauges, housing and trade figures presents a minefield.

When attempting to develop a short- or medium-term range trade, it is essential to remove as much fundamental risk as possible. For our AUDCAD setup today, the risk from a pervasive driver is diminished through virtue of the individual currency’s standing on the risk spectrum.