Next week brings some very important news with it. On Tuesday we will see if the RBA will be hiking rates for the third consecutive time. There will be US unemployment data and a rate statement by the ECB. While the volume of data is not very high the importance of it is.

The market is slowly falling into risk aversion and it will have little reason to change course unless we get some new information.

Monday 5/3

No important news scheduled.

Tuesday 5/4

4:30 GMT Australian Interest Rate Decision

The expectation is for the RBA to hold, but this will be a close one. Don’t be surprised if they raise rates again. If they do it would be a short term gain for AUD, since there is a relatively high level of uncertainty about the decision. Watch the statement though for signs of the end of the rate hikes.

Wednesday 5/5

No important news scheduled.

Thursday 5/6

12:30 GMT ECB Interest Rate Statement

The ECB will continue to hold here, and for the foreseeable future as well. Trichet has little to no power over the Greece situation at this point, so his only option is to stand back and watch. Don’t expect much to come out of the statement.

Friday 5/7

12:30 GMT US Unemployment Rate

The unemployment rate in the US has stood at 9.7% for three months now. A lot of the employment strength has been due to seasonal adjustments by the BLS. The current down trend in unemployment could be tested here

AUDUSD remains constrained by its lower highs, a trend that began this month. There is still support just above the 0.9100 level; however the price action suggests that this support will be broken. The pair has been trading in a large range over the last six months. The lack of interest rate movement out of the Fed will likely contain the pair to this range.

The return to the bottom of the range around 0.8600 will most likely be triggered by a signal from the RBA that they will be holding rates steady. As long as they continue on their rate hiking cycle, the pair should be bolstered to the top of the range. There is strong profit potential for an AUDUSD sell, this would be a long term trade, with a larger stop loss above the recent highs around 0.9370 that would target a return to the 0.8600 level. This trade should be exited if either the Fed or RBA signal imminent rate hikes.

Down Trending Highs In AUDUSD

This week was a bit mixed and overall subdued for risk appetite. Despite the strong levels in equities, only USDJPY made strong moves toward risk appetite. The dollar was surprisingly strong when you considered the movements in other related markets.  There is a small amount of data to be released next week, but the releases are of a high level of significance.

Monday 4/26

No important news scheduled.

Tuesday 4/27

14:00 GMT US Consumer Confidence

We would have to see a reading approaching 60 for this to have a strong impact. For reference the survey reads at around 100 during good economic times, and hasn’t registered above 55 for almost a year and a half.

Wednesday 4/28

18:15 GMT Fed Funds Rate

The last release really solidified the Fed’s position to hold steady for the rest of the year. There was one dissenter in the last two releases, Hoeing, who wanted to begin raising rates. It is possible that he has convinced others to join him, but unlikely that he will get enough support to do it this time. However another dissenter could greatly increase the market’s perspective on future rate increases, strengthening the dollar.

21:00 GMT New Zealand Central Bank Rate

The RBA has stated that they expect to raise rates in the middle of the year. This sentiment will most likely be reiterated, as they hold rates steady. However if they back down from this stance expect NZD to weaken on the news. NZD may also get a small round of buying if they confirm their position, but not much.

Thursday 4/29

No important news scheduled

Friday 4/30

12:30 GMT Canadian and US GDP

The Canadian release is a final release so there should be little surprises there. The US release is the advance one so it could easily surprise the market, so be extra cautious.

After today’s announcement it is clear that Australia is continuing on its course to tighten monetary policy. The consensus is that they are targeting a 5.25% interest rate, according to a recent Bloomberg article. But, what about the rest of the world?

According to Bloomberg we will have to wait some time until we get rate hikes outside of Australia.

Policy makers have “gotten their eye off the immediate ball, which is deflation risk,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s misguided for anybody to be talking about exiting” from stimulus during the next year.

Trichet’s ECB Governing Council convenes April 8 as Mark Wall, Deutsche Bank AG’s chief euro-area economist, and Janet Henry, HSBC Holdings Plc’s chief European economist, scrap forecasts for the refinancing rate to be raised this year from a record-low 1 percent. Both now expect the first increase since July 2008 to come next March.

Major central banks “are going to stay on hold longer than otherwise, keeping zero rates or near-zero rates at least to the middle of next year,” Nouriel Roubini, a New York University professor and chairman of Roubini Global Economics LLC in New York, said in an interview.

According to the Fed, inflation will be kept at bay for quite some time now. In other words, there will be no interest rate hikes for quite some time. The Fed has stuck to the term “an extended period” so look for the exclusion of this term to signal the beginning of a move toward rate hikes.

It looks like AUDUSD has considerable fundamental strength behind it, possibly enough to return to its highs, if not break them.

The entire Bloomberg Article can be read here.

So, the Reserve Bank of Australia, raised rates again, no surprise there. And in their statement that began and ended almost exactly the same as their last one, it was implied that they will be hiking them again in the future. They ended with the statement that they would be bringing interest rates back to their average levels and that this rate hike was “a further step in that process”.

There was some talk about the housing market in their statement, however at this point it doesn’t look like it will halt future rate hikes, but watch the housing data for a significant move toward weakness in the market. If this begins to falter then so do the odds of a rate increase.

Looking at the charts, AUDUSD has been pushing up on the high from March 17^th. If it can break past here it would face some considerable resistance around 0.9310. Despite pushing up on resistance, don’t forget that AUDUSD has been in a down trend since last November. So if the pair falters at the current level expect a return to support at 0.8600. The largest risk to AUDUSD strength is rate hikes out of the Federal Reserve, which are expected to come this year, as early as this summer.

In the yen pairs, AUDJPY has been the strongest pair. It bounced off of 86.18, which was the high from January 11^th. The benefit of trading AUDJPY over AUDUSD is that rate hikes in the US would be beneficial to AUDJPY. So, you can still play AUD strength without fearing an increase in dollar strength.

This past week brought us some good information in the shape of the FOMC statement. The Fed gave a slightly upgraded outlook on the economy, and more or less stated that raising the Fed Funds rate would be the last step in their tightening cycle. It looks like we will not be losing these depressed rates anytime soon. Risk appetite built up in the beginning of this week but Friday brought risk aversion. Will next week reverse today’s action or continue it?

When we look ahead to next week’s data releases there is little to get excited about. For most traders this is good news, but be careful it’s usually when no one is watching that the news has the most impact.

Monday 3/22

20:30 GMT

Treasury Secretary Geithner will be speaking at this time. He will be speaking about financial reforms so this has potential to move equity markets, if something surprising is said, which has a large impact on risk based currencies, especially AUD and EUR.

Tuesday 3/23

9:30 GMT

The BoE is expecting that inflation will start coming down so as long as we get that don’t expect too much. However, a higher than expected reading could spook the market into thinking that they would raise rates sooner than expected, strengthening GBP.

Wednesday 3/24

12:30 GMT

Durable goods data is due out of the US. This generally comes in out of line with expectations, but the market is highly variable in its response. With the light news load for next week, this has potential to cause a shock in the market.

21:45 GMT

New Zealand GDP looks to be a strong news evet, given the high levels in AUDNZD. Both currencies are set to raise rates within a few months, so a release of this level of importance will be reflected in the Forex market.

Thursday 3/25

9:30 GMT

Once again the risk for news out of England is for too much inflation. With expectations of falling inflation, the BoE is set to hold rates steady.

14:00 GMT

More testimony out of Bernanke. His prepared statement has already been released, this is all about the questioning. An event with a highly variable effect on the market, you should at least be aware of it.

Friday 3/26

No important event.

There is little doubt that from a fundamental perspective the Australian dollar is much stronger than its New Zealand counterpart. For the last two weeks however AUD has been losing ground to NZD, but AUDNZD has begun to bounce off of former resistance at 1.2850. Will the pair begin to trekking upward again now? I don’t believe so. The problem is that New Zealand is set to raise interest rates in the next few months, and while rates in Australia will be rising as well, they have already started their rate hike cycle. Since New Zealand will just be starting theirs their currency has more to gain from the first initial rate hikes.

This will be putting a downward pressure on AUDNZD, the good news is that since both countries will be increasing interest rates their currency cross should follow a clearly defined range, until one of them ends their cycle. I looks like the top of the range will be 1.2900, just above the current price.

Lately the theme that I have seen in the market has been a mild willingness to take on risk, except when looking at GBPUSD. On a day chart the pair still remains in its down trend although it is currently off of its recent lows. It has found support near 1.4870, which had been acting as resistance about this time last year. The pair also received some support by 1.50 being a sentimental level.

If you believe that risk aversion is just around the corner and the market is just taking a breather, then GBPUSD offers a good opportunity to profit from this. If the pair were to break past the recent lows near 1.4815 there is little in the way of previous support until 1.4400 and then 1.4100 below that.

There a plenty of fundamental reasons that you would want to short GBPUSD as well, with the BoE’s continual quantitative easing efforts being the foremost reason. There is also the lack of a recovery in their housing market. Creeping inflation, which normally strengthens a currency is a hindrance in this situation, since there has been little growth to compensate, setting the stage for a stagflation scenario.

Fundamentally, you have to ask yourself the question: Is England better off than it was a year ago? If no, then there is good reason to short GBPUSD.

Alternatively, since both GBP and AUD are risk based currencies you can look to buy the fundamentally stronger one, AUD and sell the weaker one GBP. In a scenario of risk appetite the AUD would gain strength faster than the GBP and in risk aversion the GBP would fall faster than AUD. Remember that being a low liquidity pair gives GBPAUD a higher spread and more volatility, not for the faint of heart.

The unemployment figure that will be released tomorrow is fake. It leaves out so much data, such as discouraged workers and underemployed workers. According to shadowstats.com the real unemployment rate is well over 20% and the broadest measure of unemployment out of the Bureau of Labor Statistics is over 15%. Yet what all of these numbers have in common is that they all change at a relatively similar rate. So, while the number is misleading, the important part to watch is the change in unemployment number.

The expectation for tomorrow is a 0.1% increase in the unemployment number. If we get any significant change, I believe that it will be a significant decrease in unemployment. Looking historically at the data release, during times of rising unemployment the forecasts are consistently too low while during falling unemployment forecasts are too high. The current trend is for falling unemployment so I am expecting the forecast to be too high. Does this mean we will get a boost to risk appetite? Not necessarily, the numbers have to come in low enough for that to happen. A reading 0.1% lower than expected would not be market moving but if it is 0.3% or more off from the expectations, look for the markets to start buying risk.

On releases that differ by a large amount, we have seen the markets run with the news throughout the trading day, so it is not recommended to trade the event itself as the low liquidity makes the market very erratic. Instead wait for the release, and if it is a big enough surprise then look to follow the momentum.

Not likely.

One of the strongest long term trades available right now is long USDCAD. From both a technical and fundamental standpoint, this trade offers opportunity for profit.

The Canadian government does not want its currency to return to parity with the dollar. They want to be able to return to the trading levels before the summer of 2008, and a strong Canadian dollar makes that difficult. The Canadian central bank is not the intervening type, when compared to countries like Switzerland and Japan, but they will keep their interest rates depressed longer than the US to push their currency down. Hopefully they will point to no rate hikes in the foreseeable future at their rate announcement this Tuesday, which would bring weakness to CAD.

It is at low technical levels, so there is little history for CAD to be stronger than it is against the dollar. USDCAD has found significant support over the last seven months around the 1.0300 level, and is currently hovering just above this important price. Of course, the pair does have some resistance above 1.0750 which could cause problems with the trade.

If there is a break below 1.0190, that would signal the dreaded return to parity. This would be a good place to set your stop loss. Since this is a longer term trade, don’t forget to lock in profit by 1.0750 at the latest.