The recent surge in volatility fueled by renewed concerns over the European crisis saw all our scalp setups from last week fly through our preferred downside targets. Currently, this shift in market sentiment may be at an extreme with risk currencies holding support in North American trade. Although a pullback of magnitude is expected, we will favor selling into resistance as ongoing EU concerns and talks over deteriorating conditions in China weigh on the aussie and overall risk assets. That said, we will continue to eye aussie pairs as the strong correlation with risk appetite will provide further conviction on scalp entries.

AUD/NZD Scalp Setup

The AUD/NZD pair has continued to hold within the confines of a descending channel formation dating back to October 25th. With yesterday’s RBA rate cut and the recent turn in broader risk sentiment, it is likely that aussie losses will outpace those of the kiwi and accordingly favor downside plays on this setup pending a break below 1.2940.

Interim resistance holds at the 1.30-figure backed by 1.3060 and the 1.31 handle. Support targets are held at the 100% Fibonacci extension taken from the September 19th and October 5th troughs at 1.2935, with subsequent profit targets held at the 1.29-figure, 1.2870, and the 76.4% extension at 1.2836. An hourly ATR of 30.77 yields profit targets of 27-31pips depending on entry.

*Note that the scalp will not be active until a break below 1.2940 or a rebound off the 1.30 figure with RSI conviction. We will remain flexible with our bias on the back of this sell-off with a move passed the topside limit at the 1.31-handle eyeing topside targets.

Key Thresholds

AUD/USD Scalp Setup

The AUD/USD has already seen a substantial draw down over the past 24 hours with a loss of more than 380pips since the Sunday open. It’s also worth noting that the dollar has seen a massive run-up as well with the Dow Jones FXCM Dollar index surging more than 300 pips over the past 2 days as traders jettison risk assets in favor of lower yielding haven plays. Subsequently we may see a short-term correction before moving lower with a break below the bottom limit at 1.0150 risking accelerated losses for the aussie.

Interim support holds at 1.0280 with subsequent profit targets eyed at the 38.2% Fibonacci extension taken from the September 1st and October 27th crests at 1.0225, and 1.0195. Topside resistance holds at 1.0350 with a breach eyeing subsequent ceilings at the 23.6% extension at 1.0425 and the 1.05-figure. A break above our topside limit at 1.05 negates the bias with such a scenario eyeing topside targets at 1.0550 and the 1.06-handle. An hourly ATR of 44.91 yields profit targets of 27-31pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed or bisect our levels to target tighter ranges.

*Note that short-scalps will not be active until a break below 1.0280 or a rebound off 1.0350 or subsequent resistance levels with RSI conviction. We will remain flexible with our bias on the back of this recent sell-off with a move passed 1.05 eyeing topside targets.

Key Thresholds

---Written by Michael Boutros, Currency Analyst with DailyFX.com

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