It was an effort coordinated through a broad deflation in risk aversion. The Canadian, Australian and New Zealand dollars all picked up from their respective lows against more 'stable' counterparts to curb what was a week-long plunge. However, does one day break such a massive trend? Our DailyFX Analysts weigh in with there outlook for the commodity bloc and their pick of the litter.
Currency Strategist - John Kicklighter
My picks: Short AUDNZD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
We have seen a sharp reversal is risk trends over the past 12 hours; but with the weekend fast approaching, it will be that much more difficult for the market to sustain this young trend. While there is considerable event risk scheduled for next week (like two rate decisions and the first reading on fourth quarter growth from the G10 in the UK), we can't rely on these isolated indicators to drive such a pervasive trend. Outside of the docket, it is very difficult (and highly uncertain) to speculate on what might be the next announcement that could drive risk appetite up or down. A few issues with potential that are still lingering are the struggling of a few major banks (Citi and Bank of America), efforts on the US stimulus plan and the fragility of the global credit market. Any one of these topics could be a driver next week. However, speculating on volatility and direction makes the probability of a profitable outcome that much more difficult. Therefore, I have found my way to AUDNZD. While there is a clear skew in percieved riskiness betweent the two, it is far less than many other pairs such that technicals may be able to curb a run.
Looking at price action from the past days and weeks, a three-day rally that has covered nearly 700 points has lost momentum around a range high seen around 1.2350/425. However beyond this being a notable pivot level, there is little weight behind this ceiling to prevent a run to retest the 1.2975. Furthermore, we can see that momentum over the past three months has steadily trended higher and a push through 1.2200 was a notable break of its own. Therefore, the approach is critical. Entry should be as aggressive as is possible with stops that are wide enough to cover today and yesterday's sharp tails (at least above 1.2425). Objectives are just as important. Considering momentum is still set on a bullish track, a first target should match the risk profile while the second should be kept at a 50 percent retracement of the recent rally. Should the setup not look good before the day closes out (there is no sign of a developing reversal), then it is best to defer an entry until after the weekend to reevaluate and confirm the market could turn.
Currency Strategist - Terri Belkas
My picks: Short USD/CAD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days
Looking at the daily charts, USD/CAD closed just below key resistance at the 61.8% fib of 1.3008-1.1763 at 1.2532 and since then the pair has spiked lower. I think this provides a pretty good selling opportunity to target the 61.8% fib of 1.1763-1.2673 at 1.2111, a level that has provided solid support in the past. Enter stops based on your own preferred risk/reward ratio.
Currency Analyst - David Rodriguez
My picks: Flat Commodity Currencies for now
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Breathtaking volatility in commodity prices has essentially clouded my outlook on commodity currencies, and I'm not yet at the point at which I'd like to enter positions into the Comm-bloc. As such, I'll stay flat for the time being, but I will ideally be selling the Australian Dollar through upcoming months of trade.
Currency Analyst - Ilya Spivak
My picks: Remain long USDCAD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I suggested to buy USDCAD near 1.2190 as the pair broke above a bearish channel that had contained prices since mid-November. Although there is a Star candlestick in place from yesterday's session and the possibility of a pullback looks rather plausible, I continue to think the bias remains bullish: USDCAD broke convincingly above multi-year resistance at a trend line connecting major highs from 05/2004 and has now bounced from major support/resistance in the 1.1760-1.1880 area (a bottom in 11/2004 as well as a top in 11/2005 and 02/2007). Continue holding long, looking for a test of December's top at 1.2749.
Currency Analyst - John Rivera
My picks:Long NZD/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
The commodity dollars are getting a lot of attention as risk appetite has picked up on the heels of the Bank of America bailout. The Kiwi has suffered the most in the past week and leaves it open for a sizable retrace. The 50-Day SMA looms as resistance at0.5613 with the 20-Day SMA as the next target at 0.5746.
Currency Analyst - David Song
My picks: Long USD/CAD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2-10 Days
Expectations for a 50bp rate cut by the Bank of Canada is likely to weigh on the loonie, and the USDCAD should continue to hold its bullish trend over the near-term as oil prices hold under $40 a barrel. After reaching a high of 1.3020 in October, the pair slipped to a low of 1.1463 on 11/5, and made two separate attempts to test the October high, but the lack of momentum to push higher is likely to hold the pair within a broad range until the rate decision next week as support continues to hold near 1.1790-1.1800 (100-Day SMA). The pullback in the U.S. dollar may drag the pair lower over the remainder of the week, but I expect the pair to push higher over the following week as market participants expe