A Rebound In Risk Appetite Sends The Australian And New Zealand Dollars Higher
The past 24 hours have seen a dramatic turn in market sentiment. Whereas liquidity was in high demand and short supply yesterday, the market is now flooding back into high yield currency pairs. Pacing the advance has been the Australian and New Zealand dollars; but can their advance continue? Read the DailyFX Analysts thoughts below to see what they forecast:
Chief Strategist - Antonio Sousa
My picks: Long AUD/JPY
Expertise: Fundamentals, Volatility and Sentiment.
Average Time Frame of Trades: 1 day to 3 months
The Australian dollar has been particularly vulnerable against lower yielding currencies like the Japanese yen. Indeed, the AUD/JPY depreciated nearly 15 percent over the last three months. Yet, the measures engineered today by the U.S. Federal Reserve to clean the market from some toxic assets could be the first leg of a more general recover in the appetite for riskier assets like high yielding currencies. Going forward, lower interest rates could make the Japanese yen less attractive to currency traders and the higher level of demand for bonds and stocks denominated in Australian dollars could accelerate the gains in the AUD/JPY. Even so, the currency market is likely to remain very volatile and a stop loss in a daily close below 85.00 is necessary to hedge some downside risk.
Currency Strategist - John Kicklighter
My picks: Long AUDUSD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
Sentiment in all the markets has shifted violently over the past 12 hours. Risk appetite has surged and the currency market has responded by buying up high yielding currencies and the US dollar. With my AUDCAD pending position from yesterday having failed its short bias, it's time to root out those high yielders that show promising fundamentals and technicals that won't merely reverse in a wave of volatility (obviously that can't be discounted after the activity this week). The Aussie dollar is perhaps the best positioned currency in both cases. With yield as the initial filter, the fundamentals are relatively bullish. With the economy still performing relatively well thanks to domestic and foreign sources, there is the means for strength. More importantly interest rate expectations have been severely depressed, which seems unwarranted as the central bank did not suggest it would accelerate the pace of cuts - and the RBA is usually cautious.
The technicals also give a strong basis for a trigger point. The former swing low in mid-August at 0.6830 happens to line up with a 50 percent retracement of the August 22nd to September 11th swing low. With the former, major rising trendline just a little ways above as new resistance, we have the makings of a good breaking point for aggressive (or long-term entry). Indeed this is not a short-term entry point because a break on an intraday time frame could easily be retraced thanks to high volatility. What's more, a position taken before the close of Friday's session would be looking directly at weekend gap risk, so stops would have to be set wide if bullish convictions were high. This is a very risky position, but relatively sound for a longer-term position based on fundamentals and technicals that look beyond the recent market conditions.
Currency Strategist - Terri Belkas
My picks: NZD/JPY Sell Limit Order Near 74.50
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-3 Days
An improvement in investor confidence amidst speculation of an announcement by the US Treasury and Federal Reserve this weekend of a plan to rid financial institutions of toxic debt has sent carry trades skyrocketing. In fact, JPY is down over 2 percent vs. EUR, GBP, and USD and has plummeted 3.45 percent against NZD and 4.65 percent again AUD. Likewise, global stocks have surged with the Hang Seng up 9.61 percent and the FTSE 100 up 9.5 percent, while US stock market futures are up. Clearly, sentiment has improved, but I think this shift will be short-lived and as a result, I will be looking for opportunities to sell risk.
NZD/JPY is consolidating below 74.00, and I see potential for price to make it up to a region of resistance where we have the 61.8% fib of 78.99 - 67.23 at 74.49 along with the September 7 and September 10 highs near 74.60. Thus, I'll be looking to place a sell limit near 74.50.
Currency Analyst - David Rodriguez
My picks: Flat the AUD/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
I was previously a staunch anti-carry trader, but recent market volatility has made me reconsider my stance. I honestly can't recommend either direction in the insane AUD/USD, and as such, I'm staying flat for the time being.
Currency Analyst - Ilya Spivak
My picks: Short NZDUSD below 0.7115
Expertise: Macro Fundamentals, Classic Tchnical Analysis
Average Time Frame of Trades: 1 weeek - 6 months
The NZDUSD decline has found support at the intersectin of a trend line in place since 2003 and the 38.2% Fibonacci retracement of the 10/2000 - 02/2008 rally at 0.6570. A corrective bounce is likely to target a test of 0.7115, the 38.2% Fib of the most recent 03/14-09/12 selloff. Look to establish short here, on a continuation of the broad NZDUSD bearish trend past trend line support to new lows near the 0.6050-60 level.
Currency Analyst - John Rivera
My picks: Lomg AUDUSD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
I am short-term bearish AUDUSD as risk appetite has gained, the unwind of the carry trade has ended which is supporting the Australian dollar. The firming of commodity prices will also add support for the currency. The 20 Day SMA lies ahead as potential resistance and a good target for one lot at .8266. I would do a second position to see if the momentum can push through that level as the next level of resistance is not until .8500.
Currency Analyst - David Song
My picks: Short AUD/NZD
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 Days - 2 Weeks
Last week, I noted that the AUD/NZD hit 'an intraday high of 1.2996 on 7/24/08, and has moved lower to hold within a range between 1.1980 and 1.2510.' Since then, the pair has moved to the downside, and I expect the underlying downtrend to push the pair lower over the following weeks. After hitting an intraday high of 1.2052 during the overnight session, the pair looks to be finding short-term support near 1.1945, and may hold a lower range between 1.1945 and 1.2070 over the next few days. I expect the pair to break below 1.1925 by next week, and may test 1.1825 for support over the following week.
DailyFX
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