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Many of the market’s most liquid pairs have experienced breakouts at one point this week; but a lack of momentum has sidelined the potential development of new trends. With reliable technicals, congestive price action can be translated into a respectable range setup.

Why Would AUDUSD Stay in a Range?   ·         Levels to Watch: -Range Top:       0.7020 (Fib, Swing High) -Range Bottom: 0.6350 (Fib, Pivot)   ·         Volatility has risen across the currency market as risk appetite unsettles the tranquil congestion most liquid pairs cut through the first half of November. Fundamentally, AUDUSD is open to a shift in risk appetite as the Australian dollar has a high yield associated with it and the RBA has shown its desire to maintain deep, ongoing rate cuts. At the same time, the greenback rate is near a bottom and many consider the economy to be ahead of the curve.   ·         Technically, AUDUSD dropped below what could have been considered a loose support around 0.65 during the swell of risk aversion earlier this week. Just behind this level, however, 0.6350 has stepped in with a triple bottom and 61.8% Fib for additional sway. Resistance is not clear for recent congestion, but the swing high of 0.7020 could avert rallies. Suggested Strategy   ·         Long: Entry orders will be set at 0.6375 is well within the recent range and just above support.   ·         Stop: The initial stop will be set below our pivot level at 0.6300. To protect profit, we will move the stop on the second lot to breakeven when the first target is hit. ·         Target: The first objective equals risk (75) at 0.6450. The second target will be 0.6550.

Trading Tip – Many of the market’s most liquid pairs have experienced breakouts at one point this week; but a lack of momentum has sidelined the potential development of new trends. With reliable technicals, congestive price action can be translated into a respectable range setup. Despite a short-term break from AUDUSD yesterday, market conditions and technicals have kept the influence of range trading anchored in the market. An aggressive entry is imperative as is keeping a relatively small window for a time frame. We will cancel pending orders after the volatility starts to die after the morning hours of the New York session tomorrow. Another consideration is sizing and trade layout. Considering the market has made the first steps towards a broad rebound in volatility, the cautious approach would be to reduce position size on any range trades. Furthermore, a wide stop can prevent a false break; but the distance to the next support may break a wide stop regardless.

Event Risk Australia And US

Australia – Fundamentals may have a heavy influence on the Australian dollar over the coming week; but our time limit on our strategy should render our setup immune from all of the scheduled event risk. Beyond our purview of event risk (which could impact an active position), the twin drivers of recession and interest rate speculation will be recharged with a 3Q retail sales gauge, a growth outlook in the Leading Index and the RBA’s November minutes. Before all this scheduled data crosses the wires, we will need to be concerned about general risk sentiment. Though the pickup in volatility over the first half of this week has settled, the reaction to this weekend’s G20 meeting could easily trigger a much more extensive breakout – whether it revives trends of risk aversion or reverses them.

US – Event risk will be an issue for the dollar through the end of this week. Friday morning brings the greatest concentration of scheduled data for the entire week. The preliminary reading of November confidence and October retail sales will offer a clear gauge of health for consumer spending – the biggest component of growth for the world’s largest economy and the best hope for a quick recovery from the grips of recession. At the same time, the market is already pricing in the worst, and we have seen disappointing data have little influence over dollar price action. Should the orders be executed, the fundamental risk for the week beyond will be more influential. This weekend, the G20 meeting could finally offer a coordinated bailout effort from the world’s largest economies, or it could deflate the speculation behind hope that they will. After that, Wednesday’s CPI will sharpen the scope on whether the Fed should drop rates again on December 16th to 0.50 percent as futures are pricing in. 

Questions? Comments? Send them to John at jkicklighter@dailyfx.com.