Australian And New Zealand Dollar Breakout Potential Draws Analysts
The Aussie and kiwi dollars have come under renewed selling pressure through the end of this week. Heading into the weekend, ranges are clearly growing progressively mature and strained, while a few crosses have already made the intial push for a breakout. A resolution to this congestion period must come soon; but when will it happen and in what direction are the questions are DailyFX Analysts are asking and answering to prepare us for the eventual move.
My picks: Remain Short AUD/JPY Expertise: Economics and Behavioral Finance Average Time Frame of Trades: 1 week - 3 months
Those that have been reading my analysts picks over the last few months know that I have become increasingly pessimistic about the world economy, particularly the economy of those countries that are highly dependent on exports. The reasons are simple. First, with the global economy slowing down the demand for commodities will also probably dry up which could mean further losses to commodity sensitive currencies like the Australian dollar. In addition, deleveraging in the financial sector, high exchange rate volatility and new banking regulation on excessive leverage could make carry trade very difficult going forward. I have been short AUD/JPY since the beginning of October and I expect the Australian dollar to fall further against the Japanese yen.
My picks: Short NZDUSD Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
The weekend is quickly approaching and volatility in the currency market is fading into the close. This leaves a lot of pairs in very prominent range, holding patterns; but a few pairs may have a jump on the inevitable breakout. NZDUSD is a strong candidate after dropping below its six-and-a-half year low 0.5350 swing low from October 27th. Realistically, this former floor held very little influence over price action - it was merely a swing low put into place following trend exhaustion. However, the fact that the kiwi dollar is pushing new lows and that the short-term reversal through the final days of October marks an end to any short-term trend reversals signals the continuation fo the dominant trend.
To keep the market heading in this direction next week, fundamentals need to support the move. Multi-year lows in equities (a key risk appetite barometer), near record highs for volatility, fears of another credit crunch being triggered by US automaker defaults will all keep the air of risk aversion present in the market. What's more, as long as the world's economies are plunging into recession and there is uncertainty over the health of the financial markets, the US will have a leg up over New Zealand for interest rate speculation. The Fed has little room to cut further; yet the RBNZ is still at 6.50 percent and willing to take big gouges out of its benchmark rate. From a technical perspective, we can seen NZDUSD has retraced its initial break on Thursday and is testing former support - a common setup for any market. While the general market is still in congestion, this may precede a broader breakout scenario. Therefore, an entry on a short position as near to the former support level as possible with a stop on a close above the falling trendline on the short-term, presents a good risk-reward setup.
My picks: Short AUD/CAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days
I'm sticking with my trade from yesterday: short AUD/CAD. This trade is based more on technicals than anything else, and looking at the consolidation of AUD/CAD below trendline resistance and within a range of roughly 0.7850-0.8100 , I think we'll ultimately see the pair break lower. Potential targets include the psychologically important 0.75 level while market-wide declines in carry trades could trigger losses down toward the 10/8 low of 0.7218. Stops should be placed a little wider than I initially indicated, perhaps above the November 10 high of 0.8220.
My picks: Long AUD/USD Above 0.7040 Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
Last week I was looking to go long the AUD/USD on a break above 0.7040, but that break never happened. My justification for the trade idea came from the fact that the AUD/USD had been forming a rather makeshift inverse head and shoulders formation, and a break above 0.7040 would represent a break of the makeshift neckline. My justification for going long above 0.7040 this week is much the same, except this time we see a much more defined inverse head and shoulders pattern--adding weight to the argument for going long on a break to the topside. As such, I'd like to issue the same trade idea. Though we'e obviously 500 pips away from my long entry level, I think a break above 0.7040 would signal that a larger upswing is underway.
My picks: Long AUDNZD above 1.1879 Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
AUDNZD put in a bottom at 1.0616 in early October and has since been rising steadily. Most recently, bullish momentum surpassed resistance at 1.1641, the 61.8% Fibonacci retracement of the 09/26-10/10 decline. Near-term resistance stands at 1.1879, the 76.4% Fib level. Look for a daily close above this to go long, targeting the 09/26 high at 1.2273. For complete analysis of the major forex currency pairs, please see my weekly technical outlook.
My picks: Short AUD/CAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
The AUD/CAD is poised for a breakout as it has been trading in a tight range. Traditionally a wedge formation following a dominate trend leads to a breakout in the same direction. Therefore, I am looking for the pair to go lower with a break below Bollinger band support at 0.7824 as my trigger and a target of 0.7500. However, a break above the 50 Day SMA at 0.8172 would change my bias.
My picks: Short NZD/USD Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days
Falling oil prices continues to favor a bearish outlook for the commodity bloc, and I anticipate risk trend to hold over the following week as credit conditions remain far from normal. The New Zealand dollar broke below the October lows to reach a six-year low against the greenback, and may fall lower over the following week as investors continue to curb their appetite for risk. The NZDUSD continued to hold within a downward trending channel over the week to reach a low of 0.5196, but bounced higher during the overnight session to reach a high of 0.5348. The lack of momentum to break above the 10/27 low of 0.5350 suggests that investors remain bearish against the pair, and may fall towards the 0.5000 level to test for psychological support over the near-term as the flight to safety continues.