Currencies | Sep 07 2011
By Michael Boutros, Currency Analyst
A daily chart shows the AUD/CAD pair breaking back below the 23.6% Fibonacci extension taken from the November 2010 and June 2011 crests at 1.0425 at mid-day in New York. The aussie has remained rather well supported amid a sharp sell-off in risk on account of the RBA rate decision last night where central bank Governor Glenn Stevens cited concerns over rising inflation. Credit Suisse overnight swaps tell a different story however, with twelve month expectations now factoring in more than 132 basis points in interest rate cuts. That said, it’s only a matter of time before the negative risk sentiment starts to weigh on the high yielder, with our setup against the loonie looking to take advantage of this eventual move. Relative strength on the pair has failed to breach the 70 mark since divergence was spotted back in early June. A close below 1.0425 provides further conviction on the scalp although we note that this setup may take some time to play out as liquidity thins ahead of key economic data this week.
A 30min chart shows the pair trading within an ascending channel dating back to August 11th. A Fibonacci extension taken from the August 1st and September 1st crests provides downside levels with initial profit targets held at 1.0380 backed by the 23.6% extension at 1.0360 and 1.0340. Topside interim resistance stands at 1.0440 backed by the 1.0480.
Key Thresholds
With a 1-hour average true range of 24.24 profit targets on said scalp should be between 17-22 pips depending on entry. We reckon a break above 1.0505 negates the bias with such a scenario eyeing topside targets at the 1.0530 and 1.0555.
Note the scalp will not be active until a confirmed break below the 1.0410 or a rebound off 1.0480.Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.
Related Economic Data Releases
Event risk for the scalp starts tonight with the 2Q GDP figures out of Australia on tap.Consensus estimates call for 2Q GDP to print at 1.0% q/q, up from a previous contraction of 1.2% q/q, with the year on year figure expected to ease to 0.6% from a previous read of 1.0% y/y. Canada presents its own even risk tomorrow morning with the BoC interest rate decision and Ivey PMI figures.
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Technical limitations
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