Renewed Volatility Recharges Australian And New Zealand Dollar Breakout Potential

Daily Forex Technicals | Written by DailyFX | Nov 14 08 15:17 GMT |

Congestion over the first half of this month has not sat well with the Australian and New Zealand dollar crosses. With underlying volatility still extraordinarily high and interest rate - as well as growth - expectations deteriorating rapidly, these high yielding currencies threaten to revive momentum and trends at any moment. See what our DailyFX Analysts expect in terms of activity and direction from these unpredictable currencies. Chief Strategist - Antonio Sousa My picks: Reamin Short AUD/JPY Expertise: Economics and Behavioral Finance Average Time Frame of Trades: 1 day - 3 months Yesterday's upward movement of high yielding currencies against the Japanese yen seems to have been propelled by a short-term recover in the appetite for riskier assets and not by real economic fundamentals. In fact, with the world economy slowing down is reasonable to think that the demand for commodities will also begin to slow down which could only mean further losses to commodity sensitive currencies like AUD, NZD and CAD. In addition, high exchange rate volatility, deleveraging in the financial sector and new banking regulation against excessive leverage could make carry trade a very poor strategy going forward. Currency Strategist - John Kicklighter My picks: Short AUDJPY Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week Risk aversion has trended higher throughout this past week despite refined bailout policy from the US, news that China was overing its own bailout package and initial comments from the G20 that suggested that a collaborative effort to stabilize the economy and markets could be reached. Why is the market so skeptical about the help the ongoing government spending and intervention may offer; because the fundamental drivers for the drop in the markets is too great to be sidestepped. With the world's largest economies falling into recession (and the worst is no doubt still ahead and unmeasurable) and market participants still far overleveraged in an illiquid and decline market, the wave of risk aversion will continue. Taking advantage of this outlook, AUDJPY presents one of the best fundamental shorts. The Japanese yen is the consumate funding currency for carry - and therefore will be unwound - while the BoJ is also seen as having little additional room to cut rates further. Alternatively, the Australian dollar is one of the top carry currencies while the economic is probabably still too optimistic considering the impact the global drop in growth will have on the island continent. Placing this broad forecast into a clear setup, it is best to wait for a significant technical event as a cue for entry and to base a reasonable risk reward around. This pair is very near the very bottom of its multi-decade range. Long-term, this could suggest there may be additional support at 55 where the pair bounced back on Oct 24th; however, we have seen many other pairs set their own records. It would not be hard for AUDJPY to do the same and break below the psychological level. Short-term however, the entry is essential. An aggressive approach would be to wait for a break of the pivot and fib confluence at 63. A better fit for setting up stops though would be to wait for a retracement closer to the falling trendline (beginning on Oct 7th) that now holds around 68.50. The first target should equal risk and the stop on the second lot should be moved to breakeven when the first lot is taken out to preserve profit. Currency Strategist - Terri Belkas My picks: Short AUD/CAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days I'm sticking with my choice from yesterday, and now, risk/reward potential looks much better. This trade is based more on technicals than anything else, and looking at the consolidation of AUD/CAD, I think we'll ultimately see the pair break lower. Potential targets include the psychologically important 0.75 level while market-wide declines in carry trades could trigger losses down toward the 10/8 low of 0.7218. MACD on the daily charts is barely positive, while RSI remains in bearish territory below 50. There are multiple indicators of resistance near 0.8050, but since it doesn't take much to shake AUD/CAD up, I would place stops above 0.8100. Currency Analyst - David Rodriguez My picks: Long AUD/USD Above 0.7040 Expertise: System Trading Average Time Frame of Trades: 2-10 weeks Last week I was looking to go long the AUD/USD on a break above 0.7040, but that break never happened. My justification for the trade idea came from the fact that the AUD/USD had been forming a rather makeshift inverse head and shoulders formation, and a break above 0.7040 would represent a break of the makeshift neckline. My justification for going long above 0.7040 this week is much the same, except this time we see a much more defined inverse head and shoulders pattern--adding weight to the argument for going long on a break to the topside. As such, I'd like to issue the same trade idea. Though we'e obviously 500 pips away from my long entry level, I think a break above 0.7040 would signal that a larger upswing is underway. Currency Analyst - Ilya Spivak My picks: Short AUDUSD (pending) Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months Australian Dollar positioning loooks to be setting up an inverted Head and Shoulders bullish reversal formation, with neckline resistance in close proximity of the 38.2% Fibonacci retracement of the 09/22-10/27 selloff at 0.6957. Current positioning is showing a Bullish Engulfing pattern, hinting at the possibility of an upside reversal. Look for a bullish correction to take prices past the neckline to position for a short in line with the long term AUDUSD downtrend. Currency Analyst - John Rivera My picks: Long AUD/USD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days The 20-Day SMA has proved to be a staunch resistance line for the AUD/USD pair and after another failed test yesterday I am tempted to short the pair. However, with the upcoming G-20 meeting expected to launch initiatives by world leaders, we could see a rebound in the global outlook and risk appetite which would be supportive for the high yielding currency. Technically it appears that a reverse head and shoulders is forming which could lead to a bullish breakout. Therefore, I would be long the AUD/USD if it makes a clear break of the 20-day SMA. The 11/10 high of 0.6987 would be my target. Currency Analyst - David Song My picks: Short AUD/CAD Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days After reaching a high of 0.9846 on 7/15/08, the AUDCAD dipped to a low of 0.7152 on 10/08, but bounced back to find resistance near 0.8495 (50.0% Fib level of 0.7152-0.9846). The failure to break above this level suggests that market participants remain bearish against the Australian dollar, and I anticipate the pair to fall lower over the following week as investors continue to curb their appetite for high-yielding currencies. In the week ahead, I expect increase selling pressures to drag the pair lower, and we may see the pair work its way down towards the 10/28 low of 0.7777. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. 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