Spotted a simple channel setup on AUD/NZD that makes sense with the market being in the doldrums of summer. After bouncing off of the top, will the pair make its way to the bottom of the channel?
On the one hour chart above of AUD/NZD, we can see the channel with a slight bias to the downside as we spot lower “highs” and lower “lows.” The pair just bounced off of the top of the channel once again, and now it’s holding at a level of previous strong interest 1.1150. Will this level break?
Of course, I don’t know, but with the directional bias to the downside at the moment, I think the odds are in favor of the bears for now. Also, we just got a big positive read from the Global Dairy Trade numbers, which may help support the Kiwi in the short-term since dairy is one of New Zealand’s biggest exports.
I think this area between the current levels, all the way up to the previous resistance area is a legit area to draw in sellers, which is why I’m scaling into a short position on this pair. My max stop is above that end of June high just above 1.1400, and my max profit target is the around the bottom of the channel and near June consolidation. Here’s what I’m going to do:
Short quarter position AUD/NZD at 1.1150, max stop at 1.1450, max profit target at 1.0800
Short quarter position AUD/NZD at 1.1300, max stop at 1.1450, max profit target at 1.0800
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.24:1 if both positions are triggered. But with the choppiness of the market recently, I’m likely to not get greedy with profits and take’em quickly. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary…stay tuned!