Top Trade Idea for July 11, 2013 – AUD/NZD

Selling into the AUD strength against the NZD

In an effort to avoid the post-Bernanke chaos in the dollar and euro, I am looking a pair where there is both a stable, overall trend, and a lessened impact from the volatility of Bernanke’s statement: “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy.”

That brings to a currency that has continued to fuel the trends that I have traded for the past few months* and that is the AUD. The Australian dollar did gain against the U.S. dollar after Bernanke’s dovish Q&A yesterday late-afternoon. But to say that the move was based on the aussie as the driver would be wrong. In fairness to the aussie, while the initial move higher in the AUD/USD was based on USD weakness, the Employment Change release did show that the aussie economy added 10k more jobs than expected (10.3k actual versus 0.3k consensus)

*Admittedly, this is still a longer-term time frame commitment and for some traders – especially during the Summer months – this is an uncomfortable time frame considering the volatile nature of this time of year. For traders that would prefer staying nimble here’s a video I recorded on “When it’s time to “retreat” to shorter time frames”

One of the reasons I am looking to the AUD/NZD is of course sidestepping the U.S. dollar. While I am certainly not saying that the SCOPE and VELOCITY of the move is a surprise, volatility and exhaustion under 85.00 in a market that had not yet transitioned into an established uptrend IS expected. I also like the established bearish Directional Bias (aka a quality daily trend) on the pair. The chances that the AUD will gain on the NZD longer-term is low and this is punctuated by NZ FinMin Bill English’s comments that: “New Zealanders think they are going to have 5 percent rates forever…well they aren’t. They are going to go up, it’s just a matter of when.”
The average price hourly price movement range for the AUD/NZD does put the aggro 1.1745 short sell within reach so this entry has what I call “proximity” in that when parking a limit sell at this level there can be a realistic expectations of getting the trade filled. It’s the conservative 1.1795 entry that may take more time to be reached.

The Point of Validity (”POV”) stop-loss on the trade is 1.1920/30 but a Cheated-In stop loss (”CISL”) at 1.1860 is a smarter way to handle this trend. Look to support at 1.1660 for an initial profit target where I would recommend ratcheting in the CISL to a “Break Even” stop loss to just above the conservative entry which would put it at 1.1805/20 to be able to benefit from the major psychological level resistance and the selling pressure that will likely be waiting there.