Congressional Bailout Vote Could Drive Australian And New Zealand Dollar Volatility
The potential for breakouts and volatlity in the premier carry currencies in response to the US governments efforts to stabalize the financial crisis should be more than evident. After the first version of the bill was shot down on Monday, both the Australian and New Zealand dollar came to life. With volatility draining into the weekend, traders will be on the edge of their seats, awaiting the vote count. Should it come after hours, gaps are highly likely. See how the DailyFX Analysts are positioning for this event risk below:
Currency Strategist - John Kicklighter
My picks: Pending Short AUDUSD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
For those looking for a potentially aggressive breakout and substantial follow through, AUDUSD has the levels in place, the distance to run and the event risk needed to trigger the whole thing. Technically, the pair is settled in a steeply-pitched, downward-sloping trend channel that began on September 30th. However, outside of this formation, there are far greater technicals that will likely result in a major breakout relatively soon. Support is called up at 0.77 - the level a trendline from September 2003 to March 2006 falls. For resistance, the even 0.78 stands as a notable pivot point that has stood up as both support and reistance over the past few weeks. A breakout to either side could lead to substantial follow through.
Long-term fundamentals matter little at this point. The market is interested in one thing at this point - the financial bailout. Due sometime today, the vote will define the directin of the US dollar and the carry trade. If the bill is voted down, a flight to treasuries and sharp sell off in the high-yielding carry currency will could force a bearish breakout through 0.77. Alternatively, the approval can lead to a relief rally that could shake some of the aggressive depreciation in RBA rate expectations. What's more, when the financial market uncertainty passes, the market will then shift its concern to the possibility for recessions. With the US coming off a strong second quarter, it is very likely that the market has not fully accounted for a second half recession in the dollar's recent rally.
Currency Strategist - Terri Belkas
My picks: Long AUD/NZD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days
AUD/NZD is consolidating between 1.1700 and 1.1785, but more importantly, the pair is holding above key trendline support going back to the 7/24/07 lows. As a result, I think it provides a good risk/reward opportunity to go long the pair. From a fundamental perspective, it's tough to find "bullish" reasons to buy the Aussie since economic conditions are so dismal in Australia. However, the same goes for the New Zealand dollar and as we've seen with the US dollar, it doesn't necessarily take strong data to lead a currency to rally. Initial targets can be set for the 38.2% fib of 1.2300 - 1.1673 at 1.1911, though I think we could see a move as high as 1.2060/1.2100. Stops should be placed below the 10/2/08 low of 1.1673.
Currency Analyst - David Rodriguez
My picks: Stay Short AUD/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Exactly at this point last week I signaled my intentions to go short the AUDUSD, and it's turned out well. My overall bias remains bearish on the Australian dollar and bullish the US dollar, so I'd like to stay short until further notice. That said, more short-term minded traders could take some profits off the table on a continued hold of previous support near 0.7673.
Currency Analyst - Ilya Spivak
My picks: Long AUDNZD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
The Australian Dollar lost nearly 10% of its value versus its New Zealand counterpart since late July. Price action has been contained in a bearish channel. Current positioning sees the pair find support at the intersection of the channel bottom and the 76.4% Fibonacci retracement of the 03/25-07/24 rally at 1.1717. Look for a corrective upward bounce, with an initial target at 1.1881 (the 09/18 close) and a more ambitious one at 1.1956, the 61.8% Fib.
Currency Analyst - John Rivera
My picks: Short AUDUSD
Expertise: Fundamnetals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
The RBA is expected to cut rates by 50 bps next week at their policy meeting., which should weigh on the Australian dollar. Commodity prices have continued to drop as the expectations for global growth continue to dim, which will add to the current woes of the Australian economy. I look for a test of 0.7500.
Currency Analyst - David Song
My picks: Short NZD/JPY
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 - 10 Days
During the month of September, fading risk sentiments has fostered bearish sentiment for the NZDJPY, and has led the pair to break below key support level. After falling to an intraday low of 67.23 on 9/16, the pair has bounced back to retrace earlier losses, but has failed to break above its current range. As the economic docket remains bare for the following week, I anticipate the underlying downtrend to lead the pair below the key support level of 69.00 next week, and we may see the pair test 67.23 for near-term support on its way to the downside.
DailyFX
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