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Over the past few weeks, most of the majors have fallen into range conditions; and with little in the way of notable event risk scheduled for next week, congestion may persist. Projecting relative stability makes for an appealing, short-term NZDUSD range setup.

Why Would NZDUSD Stay in a Range?   ·         Levels to Watch: -Range Top:       0.6150 (Trend, Fib) -Range Bottom: 0.5790 (Pivot, Fib)   ·         Though in the middle of a wider range and engrained in an even larger dominant trend, a short-term NZDUSD range looks established enough to hold up through a relatively open to the new week. This is reasonable to forecast considering the lack of market moving data from either side of the pair next week. General risk trends will still be a significant concern for this pair however.   ·         The levels holding NZDUSD congestion together are relatively clear. Support is the primary focus for our short horizon, and the horizontal pivot level that is seen with multiple daily lows around 0.5800 offers a straightforward strategy for setting stops. To offer it an additional level of importance, the 38.2% Fib of the Oct 27th to Nov 4th advance is also there. Resistance is a larger Fib and moving trendline. Suggested Strategy   ·         Long: Entry orders will be set at 0.5815 within the ‘tail zone’ of the recent daily ranges.   ·         Stop: The initial stop will be set below Oct 31st swing low at 0.5740. 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 0.5890. The second target will be 0.5985.

 Trading Tip – Over the past few weeks, most of the majors have fallen into range conditions; and with little in the way of notable event risk scheduled for next week, congestion may persist. Projecting relative stability makes for an appealing, short-term NZDUSD range setup. The strategy we have laid out takes advantage of a very clear support level, which is easy to place stops below. However, larger forces are working against us. The dominant trend is still bearish; and, though volatility has settled some what, there are still periods of significant momentum for this pair. To reduce risk, we have set the entry very close to support and set a time limit on open orders to Wednesday morning. Though there is no event risk on the docket, market conditions will change with time. If we are not entered by the middle of next week, it will be time to reevaluate. Playing the short-side on this range may be tempting (as it does go with the larger trend), but as resistance is a moving target, it is difficult to setup a reasonable entry with good risk/reward. 

Event Risk New Zealand And US

New Zealand – Event risk will build steam next week with a number of indicators that will offer a look into inflation and growth trends. However, considering the market’s preoccupation with a global recession and the normal functioning of the international financial markets, interest in these fundamental releases will be naturally depressed. Nonetheless, concern over price growth will open the week up with measures of housing and factory gate inflation. The more quickly these gauges decline, the more scope RBNZ Governor Alan Bollard will have for training his focus on the economy and lower rates more aggressively. Later in the week, the focus will turn back towards the struggling economy. The Business PMI will reflect the drop in domestic and foreign demand, the delayed drop in input prices and the influences of tight lending rates. More important is the retail sales figures for September. As this reading closes out the quarter for consumer spending (one of the biggest components of GDP), it will help define forecasts for economic activity.

US – After a relatively quiet week for the US economic calendar, event risk finally picks up for the final trading day of the week. Non-farm payrolls has been the most market-moving economic indicator for the US dollar in past years; but it has quickly lost its tout as trades have grown used to the steady declines in employment that accompany a recession and have moved on to speculation over interest rates and overall risk appetite in the financial markets. This means that the reaction to the upcoming report will be dampened, but a significant surprise can still offer considerable volatility – though considering the drop in liquidity as the weekend approaches, it will have to be a shock indeed to force a breakout.

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