Often times, a good range opportunity comes hand in hand with a high probability of a breakout and vice versa. The set up in AUDUSD is certainly walking that fine line. Recently, the pair cascaded lower, carried by wave of risk aversion that produced volatility in a nearly 175 point decline. The weekend pulled the plug on momentum; but the chart is still marked with lower lows - raising the prospects of a breakout. However, with the weekend acting as a potential cooling period for the previous decline we could very well see a rebound on the auspices of mild event risk in the first half of the week. Our suggested strategy is tailored to the possibility of a breakout move with good entry and tight stop. To play this scenario more conservatively, the objective can be set at 0.9150 to take profit on a small bounce before a possible continuation move.
Event Risk Australia and US
Australia – A number of second-tier economic releases do threaten to force unexpected volatility, but we believe we would have to see especially large surprises to force worthwhile moves in the AUD. A notable exception may include the RBA Quarterly Monetary Policy Statement on the 11th. Though we have recently read RBA commentary in the form of the recent post-hike statement, any substantial shift in rhetoric may fuel choppy AUD trade. Otherwise the Aussie will trade off of global risk sentiment. If global equity indices continue to falter, we could easily see the AUD falter against the USD. Hence it will be important to watch price action in equity indices so as not to get stopped out of our AUDUSD trade.
US – Economic event risk will be limited in early-week trade, but that will clearly change by Wednesday, as Producer Price Index and Advance Retail Sales reports threaten to force major volatility in USD pairs. Highly anticipated retail figures are typically market-moving events, and recent consumer confidence data will only increase scrutiny on the report. The next day’s Consumer Price Index figures may likewise force sharp moves in the dollar, and range traders will really have to monitor any USD-based range trades on the 14th and 15th of next week.
