Risk Trends to Hold AUDUSD in Wide Range Ahead of 2009

With volume steadily falling ahead of the Christmas holiday, the lack of momentum behind previous trends should hold the AUDUSD within range over the near-term. Moreover, as investors remain risk adverse, the odds for an Australian dollar rally are negligible as global equity prices fall lower.

Why Would AUDUSD Hold a Range?

·Levels to Watch:

-Range Top: 0.7050 (Fib, Swing High)

-Range Bottom: 0.6010 (Trend)

· The AUDUSD held within a 1000+ pip range over the past two months, and as risk trends remain a dominant theme across the market, the pair should continue to hold its range over the near-term. Moreover, as demands for carry trades remain subdued, the probability of a major breakout is nominal.

·In the previous week, the pair made another attempt to test the 0.7050 level, but the lack of momentum to push above this level suggests that pair will continue to face resistance over the near-term. As adverse price risks are our main interest, the notable 61.8% Fib supports our range trade strategy as it falls close to 0.7050.

Suggested Strategy

· Short: Half sized entry orders will be set at 0.6675 – the 20 Day SMA.

· Stop: An initial stop at 0.6775 should suffice to account for any adverse price movements. To secure profit, move the stop on the second lot to breakeven when the first target hits.

·Target: The first objective equals risk (100) at 0.6575. The second target will be 0.6425.

Trading Tip – With volume steadily falling ahead of the Christmas holiday, the lack of momentum behind previous trends should hold the AUDUSD within range over the short-term. Moreover, as investors remain risk adverse, the odds for an Australian dollar rally are negligible as global equity prices fall lower. The strategy entailed accounts for the impact of the fundamental event risks scheduled for the week along with expectations for 2009, and the implications of the state of market will provide favorable conditions to position for a range trade. We will cancel open orders before the New Year or should spot hit 0.6900 before initiating the trade.

Event Risk Australia and US

Australia – As the economic docket remains extremely light over the last days of the year, risk sentiment is expected to drive price action for the Australian dollar. Meanwhile, the interest rate outlook for the aussie continues to support a bearish outlook for the pair as market participants expect the Reserve Bank of Australia to lower the official cash rate by at least 100bp over the next year, while economists forecast the central bank to cut borrowing costs by 50bp to 3.75% at the February 2nd policy meeting.

US – U.S. durable good orders has be a major market mover for the dollar during the past, and as liquidity drops across the market, the greenback will be on defense as economists expect demands to fall another 3.0% in November, following the 6.2% drop in the previous month. In addition, personal spending, which is one of the two biggest drivers of growth, is anticipated to fall 0.7% for the same period, which continues to reflect a dour outlook for the world’s largest economy. Meanwhile, over the following week, a light economic calendar will leave the dollar at the mercy of risk trends, and may continue to benefit from its safe haven status as investors limit their appetite for risk.

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