An Intra-day NZD/USD Channel is Creating Scalping Environment

http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/scalping_report/2011/01/21/An_Intra-day_NZDUSD_Channel_is_Creating_Scalping_Environment.html

The NZD/USD has seen choppy trade since its sharp decline following a weak core retail sales reading. Demand for goods outside of automobiles fell 0.2% versus expectations for a 0.5% rise which overshadowed the 1.5% gain in the headline reading and added to the dimming outlook for further tightening. Broader risk aversion had also weighed on the high yielder as markets grew concerned that China would begin to raise rates to cool their economy. A surge in the Asian giant’s benchmark money-market rate as lenders ran short of cash as they deal with four raises in reserve requirements has limited the potential for tightening and helped foster a return of risk appetite. The broader demand for yields and the prevailing bearish sentiment is limiting the risk for a breakout, creating an ideal scalping environment. However, the higher spreads that the pair generates will limit profit potential for high frequency trades and should be taken into account when generating and closing positions.

Key Technical Levels

Charts created using Strategy Trader– Prepared by John Rivera

The 100-Day SMA at 0.7532 is proving short-term support and could limit downside risks for the pair. We also see the lower bound of a developing range as potential support. The 50-Day SMA at 0.7587 has helped slow bullish momentum and could provide a short-term resistance level. Meanwhile, an ascending intra-day channel is providing target level for traders to enter and exit positions.

Charts created using Strategy Trader– Prepared by John Rivera

Key Support/ResistanceLevels to Watch

Pair	S/R	Level	Spot	Valid Since	Market Influence
EUR/JPY	Resistance	200-Day SMA	112.30	12/08/09	High
NZD/USD	Support	100-Day SMA	75.38	12/23/10	Low
GBP/JPY	Resistance	200-Day SMA	132.72	11/19/09	High

Quantitative Metrics

The NZD/USD’s Bollinger band width has narrowed to 325 pips as the pair has settled into a short-term range. Its level of variance ranks near the bottom of the most active pairs, enhancing its attractiveness as a scalping target. However, recent volatility has pushed the ATR to 90 pips which on a relative basis are the highest amongst the majors as it accounts for 1.18% of spot. Overall implied volatility levels are on the decline which is potentially reducing risks for high frequency traders.

Charts created using Strategy Trader– Prepared by John Rivera

Volatility / Activity Indicators

	EURUSD	GBPUSD	USDJPY	USDCHF	USDCAD	AUDUSD	NZDUSD	GBPJPY	EURJPY
ATR(14)	0.0154	0.0154	0.7422	0.0113	0.0075	0.0111	0.0090	1.2400	1.2294
ATR%	1.13%	0.96%	0.90%	1.18%	0.76%	1.12%	1.18%	0.94%	1.10%
20-5 Day SMA	-0.0196	-0.0292	-0.0274	-0.0039	0.0029	0.0067	-0.0018	-2.4438	-1.6599
Boll. Band Width	0.0740	0.0847	2.5158	0.0473	0.0235	0.0422	0.0325	8.3773	5.4748
1 wk Implied Vol	12.4950	9.9850	10.2875	12.0075	8.8300	12.1400	12.8300	10.7900	11.6450

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