Forex Trade Idea: AUD/NZD Support Break & Retest?

AUD/NZD recently broke a significant support area around 1.0900 and out of a consolidation pattern. Will this draw in forex traders to sell and create momentum?

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AUD/NZD Daily Forex Chart

AUD/NZD Daily Forex Chart

From June through September, AUD/NZD was stuck between 1.0900 – 1.1400 but thanks to recent economic catalysts that include a decline in Australian jobs vs. a tick higher in New Zealand inflation data, forex traders have finally found a reason to break that range.  The question now is, “is this a fake out or a break out?

Of course, we’ll never know until we get there, but given the inability to break above 1.1400 and the momentum the Kiwi has had behind it recently, I like the odds that this pattern may draw in more sellers.  Also, with the next major buying support not likely to be seen until the April lows around 1.0029, the risk-to-reward makes this a trade worth taking for me.  Finally, with a carry rate in favor of the Kiwi, holding this as a position trade is no problem for me.

So, I’ll be looking to short on a pullback higher to that broken support area, with a wide stop of more than one weekly ATR.  Here’s what I’m doing:

Short half position AUD/NZD at 1.0900, max stop at 1.1200, max profit target at 1.0050

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

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 2.83:1. 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 by following me on Twitter and Facebook!