New Zealand And Australian Dollars Break Lower As Yields Tumble
Only a few years ago, the Australian, New Zealand and Canadian dollars were pushing multi-decade and record highs as carry traders pined for the highest yields and exposure to the commodity rally. Conditions have certainly changed since then. Not only is risk aversion driving traders away from the carry currencies; but the steady and deep cuts to the benchmark lending rates have scuttled speculative interest that is perhaps forecasting the eventual rebound in global markets that could make interest rates attractive once again. So with full economic dockets next week and risk trends finding greater volatility, what should we expect from the Com Bloc next week and where are the best setups?
Senior Currency Strategist - Jamie Saettele
My picks: short USDCAD, against 1.245, target below 1.20
Expertise: Technical
Average Time Frame of Trades:
Although the larger degree USDCAD trend is up, the pair is completing a triangle that began in October 2008. A drop below 1.2020 would potentially complete the triangle. The triangle support line is at about 1.1880 today and increases roughly 10 pips per day. Near term, the decline from 1.2770 and recovery from 1.2020 is probably waves a and b of a the last triangle leg
Open trades:
- Long GBPAUD: move risk from 2.02 to 2.13 (locked in large profit). Target remains 2.30
- Long EURUSD: against 1.276, target TBD (this one is scary)
- Long USDJPY: against 87.9, target 93
Currency Strategist - John Kicklighter
My picks: Short NZDUSD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
A wide range for NZDUSD had drawn my attention last week; but it was the surprisingly narrow chop that the pair turned to above 0.52 that really suggested potential. In my strategy from last week, I was waiting for a confirmed breakout from the tight congestion band between 0.5350 and 0.5200. It took longer than I had expected and the direction the market ultimately followed was the less probable route. Nonetheless, my cautious approach had put me in on the close below support; and follow through - though modest - is there. Looking for a comm bloc trade once again this week, I see notable setups behind AUDUSD, AUDCAD, AUDJPY and EURCAD; but the best setup now still looks to be NZDUSD. Fundamentally, risk aversion is on the rise and many of the market's most liquid, risk-sensitive pairs are on the cusp of major breakdowns. This is likely the reason we have seen limited momentum on the kiwi's break; but it seems well worth it to take the risk for an active position that has nothing but space to allow bears to really pick up the pace when deleveraging and flight to safety are market-wide drivers.
Beyond the fundamental shifts that have got NZDUSD to this point, we also have to consider the technicals that will define what can happen going forward. Ignoring the uncertain path of risk sentiment, we can look to the charts to find potential hurdles to trip up a steady bear trend. For precedence, we have to look all the way back to 2000 to get the full picture. The last major swing low came back in October of that year with a wedge formation that would eventually lead to a bullish break that never really lost its momentum for nearly four years. This has left few points of centention along the way for us to derive notable blocks. However, the nearest, potential blockade comes at 0.5000. As the June 2002 swing high, this could be new support from former resistance - though its prominence is lacking (though without breaks from other risk pairs, this may become a much more influential level). Below that, we have a clear run down to 0.45.
Currency Strategist - Terri Belkas
My picks: Short EUR/CAD on a daily close below 200 SMA
Expertise: Fundamentals combined with technicals
Average Time Frame of Trades: 1 day - 1 week
My pick from last Friday was to go long EUR/CAD, which ended up getting stopped out. In an attempt to be more cautious, I am looking to sell the pair on a daily close below the 200 SMA at 1.5833. There are notable lows at 1.5750/63 as well, but since the 200 SMA has served as solid support in the past, I prefer to look toward this indicator as a signal. Potential targets include the psychologically important 1.5500 mark, the 50% fib of 1.3289-1.7514 at 1.5403, and a rising trendline that connects the November 2007, October 2008, and November 2008 lows. Stops should be set according to preferred risk/reward ratios.
Currency Analyst - David Rodriguez
My picks: Sell rallies in the AUD/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
I believe the Australian Dollar will continue on its overall downward trajectory, but I don't necessarily believe selling is a good idea at the moment. The currency has fallen substantially in the past several days, and though I consider myself a momentum trader, I think selling at this point offers pretty poor risk/reward. As such, I will be looking to sell big rallies in the pair in the weeks ahead. The combination of an outright rout in industrial commodity prices and a clear-as-day bear market in global equities leaves outlook for the risk-sensitive Australian Dollar very bearish. I will be on the lookout for good entry prices through the immediate future.
Currency Analyst - Ilya Spivak
My picks: Remain Short AUDUSD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I sold AUDUSD at 0.7079 as the pair showed a Hanging Man with bearish confirmation. Positioning is little changed from last week: prices managed a bit of upside but bullish momentum has been conspicuously feeble. The line in the sand stands roughly at 0.6811; a close above this level would violate the downtrend (in breaking the progression of lower highs) as well as surpass a key pivot juncture that has acted as both support and resistance since early December. For now, remain short targeting a test below 0.64 and maintain a stop-loss at 0.7380 above the 10/07/2008 wick high.
Currency Analyst - John Rivera
My picks:Long USD/CAD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
Although my long NZDUSD trade was good for 100 pips in profit, but the RBNZ surprising with a 150 bps rate cut would completely derail the "Kiwi" and send it lower towards 0.5000. Although we may see support at that level I am staying away from the pair, longer term the potential lies to the upside and now may be a good time to enter a position, but until I see further evidence I will sit on the sidelines.
Therefore, this week I am looking at a long USD/CAD trade as the pair has moved higher from support at 1.2000 and with Canadian economy following the U.S. lower, its employment numbers are expected to be dismal next week with economist forecasting another 40,000 in job losses making it three consecutive months in a row. Additionally, November's GDP figures were worse than expected lowering expectations for December. 1.2500 may see some resistance, a break above there leaves1/21 high of 1.2767 as my next target.
Currency Analyst - David Song
My picks: Short AUD/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
Expectations for a RBA rate cut next week favors a bearish forecast for the AUDUSD, and the pair should continue to hold its bearish trend over the near-term as investors expect the central bank to continue its easing cycle over the coming months. After reaching a high of 0.7272 on 01/06, we saw the pair fall sharply from the January high, and the lack of momentum to push high suggests that investors are bearish against the aussie. As a result, I expect the aussie-dollar to continue its move to the downside over the week, and will hold my target at the 11/24 low of 0.6231.
Currency Analyst - Joel S. Kruger
My picks: Buy NZD/USD @0.5010, for 0.5380; stop at 0.4890
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
The market has descended to fresh multi-year lows below 0.5100 thus far today. While the overall structure is clearly intensely bearish, daily technical studies are starting to warn of a major corrective upswing. Next key support for the pair comes in by 0.5010, which coincides with the previous breakout highs from June 2002. While we would expect to see a test of this level, we do not expect setbacks to extend much further before a healthy bounce, especially considering the formidable psychological support by 0.5000 which should see some decent sized profit taking across the board. As contrarians, we often like to look at the Average True Range (“ATR”) of an instrument to give us a better sense of compelling risk/reward trade ideas. This is a necessary step to take, particularly in the current markets where counter-trend trading can be so dangerous. Nevertheless, the best bull opportunities come within bear markets and as such, we continue to look for attractive counter-trend trading ideas. The monthly ATR has been well exceeded and both the weekly and daily ATRs project a potential downside move to retest the June 2002 highs by 0.5010 today. While the ATR only gives a trader an “average” projected range, it still is a useful tool to anticipate the full extent of a market move within a given timeframe. As such we will be looking for an opportunity to establish a long trade on a test of the 0.5010 support.
Fundamental Catalyst - RBNZ event risk is now out of the way and although the central bank has warned of further reductions, the event risk has now been priced into the markets. Global equity prices while still tracking lower are showing some form of stabilization or at the very minimum, a slowdown in the intense liquidation as seen in previous months. Commodity prices have also been showing some constructive price action with gold starting to break higher and seemingly more and more in demand. The broad based USD gains have also look to have run their course for the time being and as such, at least over the shorter-term, there could be some value in trying to pick up some positive carry at current levels.
DailyFX
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