Good afternoon! Today was full of nice reactions and great trade setups like Cable’s range in between its opening price and the top of its daily range and USD/CAD finding support at the bottom of its daily range, but my “Pick of the Day” goes to NZD/USD for mixing up divergence and candlestick patterns against my horizontal levels.
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NZD/USD rose from the get go today on as risk tolerance grew on forecasts that China will stay above 9% growth, and after Auckland based Fonterra Cooperative Group, Ltd., said whole milk powder prices rose to a seven-month high.
But the Kiwi party didn’t last long as the rally was quickly turned around on weak US housing starts and as traders price in an expected increase on continuing claims.
I picked this pair because there was a confluence of technical signals giving us a high probability of a reversal. But before we get there, we can see the market broke and found support at the top daily ATR/previous day high (PDH).
Next, we saw the bullish candle reversal “morning doji star” at the same broken resistance-turned-support. Going long would have yielded a max 40 pips.
Finally, my “Pick of the Day.” An awesome bearish reversal signal formed just under as strong inflection area–top of the weekly Average True Range (ATR). We can see that a evening doji star form with divergence signaled a turn. And combined with the weak US data, that lead to a strong risk aversion move back into the Greenback against the high-yielding currencies.
The total move was about 100 pips at the close of the US session and a 30 pip stop would have kept you in the entire move. Shoot, NZD/USD is still dropping beyond that as Australia and New Zealand open up trading, making this drop a monster move relative to its usual daily volatility of 80 pips.
So, today we learned that China’s growth outlook still has an influence on global risk and that weak US housing is still the norm and boosting the US Dollar. Also, we know that traders are pricing in weaker jobs data tomorrow, so I’d pay close attention tonight as China releases various major economic data like GDP, Retail Sales, CPI and PPI. Also, New Zealand is releasing it’s CPI numbers pretty soon.
Volatility should continue to be great for this pair, so I’d keep an eye on it and be ready to catch a trade opportunity if it appears! Good luck and good trading!