Cut or no cut? What levels to eye for each.

The RBA is expected to cut/not cut later today. That is how it is shaping up as the prognosticators are pretty much split down the middle.

With coin flip odds, traders can look to trade the "apres-decision" moves.

One way, to trade the event is to look for the spike, lower (or higher) and trade the retracement. To do this, I will place a fibonacci from the top (or bottom) of the "trend like move", and look to enter the trend by trading in the correction zone between the 38.2-50% retracement.

For example, assume a move a move lower like the one shown above (NOTE this is just an example - this is not the current market). A trade strategy is to look to sell a correction in the yellow area - with a stop if the price starts to trade above the 50%. The idea is that if the trend-like move was supported by traders on the way down, it should be supported by traders on a correction in the 38.2%-50% area. Using this chart as an example, the risk is defined at 0.7604 area (50%). Depending on the decision and statement, traders may need be aggressive before the 38.2% retracement area. The important thing is risk can be defined and limited.

As far as targets, the chart below outlines the steps lower and higher (cut or no cut).

I would expect that if there is a 25 basis point cut, the price should test and make it eventually through the 0.7527-32 area (low and trend line - blue circle 2). Look for this level to hold resistance on a correction if broken.

Below that level the next target is:

  • 0.7480 (blue circle 3) and
  • 0.7443 (blue circle 4).

Both are trend lines connecting most recent lows on the 4 hour chart.

Since the price will be trading at the lowest levels going back to 2009, there is not a lot of support apart from these trend lines. A move to blue circle 3, implies a range of around 135 pips. A move to blue circle 4 would imply a 173 pip trading range. This area should slow a decline on a cut. Look for profit takers against the areas.

ON the topside, the target will work back toward the broken levels including the:

  • 0.7608: 100 hour SMA (not shown) at 0.7608,
  • 0.76467: The topside trend line
  • 0.7672: 200 hour MA (not shown)
  • 0.7700: 100 bar MA on 4 hour chart
  • 0.7733: 200 bar MA on 4 hour chart

At in the 0.7733 area, not only is the 200 bar MA there(green MA line) but, there is a series of highs and lows going back to January 29. This area should give cause for pause. It would also be about a 150-160 pip range for the day which should slow momentum.