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It is difficult to spot short-term range setups with volatility and retracements still prevalent across the currency market. However, with fundamentals and technicals in mind, AUDNZD represents a viable congestion trade.

Why Would AUDNZD Stay in a Range?   ·         Levels to Watch: -Range Top:       1.1600 (Double Top) -Range Bottom: 1.1260 (Fib, SMA)   ·         Looking across the currency market, there are few developed ranges that offer both significant risk reward and the potential to hit targets before the market has time to shift. One of the few short-term opportunities however is seen in AUDNZD. This pair is fundamentally buffered by the fact that they are both heading into their respective recessions and each is considered a key carry currency. And, while event risk is present, it favors the dominant trend and may in fact help price reach entry.   ·         On the technical side, the range that AUDNZD has cut is relatively young and untested. Resistance is found in a double top at the psychologically significant 1.16 level – not a very impressive barrier. Support at 1.1250/60 is far better fortified with a 20-day SMA, two fib levels and a developing base. Suggested Strategy   ·         Long: Entry orders will be set at 1.1295 which is a reasonable entry point considering support.   ·         Stop: The initial stop will be set below the confluence of indicators at 1.1220. 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 1.1370. The second target will be 1.1475.

Trading Tip – It is difficult to spot short-term range setups with volatility and retracements still prevalent across the currency market. However, with fundamentals and technicals in mind, AUDNZD represents a viable congestion trade.  We already know this pair to be relatively well-insulated to the strong gusts of risk appetite as both the Aussie and kiwi dollars are dealing with recessions and are considered the preeminent carry currencies. However, it is important to consider that in the near-term there is significant event risk read in countries’ respective economic dockets. This could work to a range trades advantage however, the pair is currently in the middle of its congestion band; and a jump in volatility could trigger our entry order without forcing a breakout. Furthermore, it should be noted that are strategy is only looking to play the long-side of the range as resistance is very fragile and the medium-term trend developing in favor of the bulls. As always, to reduce risk, we will cancel all orders by Friday to ensure we aren’t triggered on a weekend gap or are entered as market conditions change.

Event Risk Australia And New Zealand

Australia – There is consider event risk fodder on the Australian economic docket – though most of it will cross the wires after we would cancel any linger open orders. Immediate risk is the employment change for October due Thursday morning in Australia. After the RBA announced a 75bp rate cut and stated their concern about growth cooling more quickly than was anticipated, there will certainly be a greater focus on the development of the country’s recession going forward. What’s more, with the confirmation that the policy authority would sustain its aggressive pace of monetary easing after today’s decision, the Australian dollar will respond more readily to interest rate speculation. If the overnight index swaps are correct, the RBA will cut further and the market will look to the quarterly monetary policy statement next week for confirmation to such speculation.

New Zealand – New Zealand is in exactly the same fundamental situation as Australia. The kiwi economic calendar is only offering the market one noteworthy indicator (ironically enough the 3Q employment change numbers) for the rest of the week and it will hit the wires early Thursday morning in New Zealand. A contraction through the three month period is expected as recession set; and the forecasted decline in employed as well as the forecasted 4.3 percent jobless rate (the highest since the first quarter of 2003) would certainly extend the time it would take for the New Zealand economy to rebound from its current mailaise. Of course, it would also open the door to further, aggressive rate cuts from the RBNZ. And, the housing inflation, factory inflation and retail sales figures due next week will only broaden the dovish scope.

Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.