We’ve got an active calendar for both the Aussie & Kiwi in the week ahead, so I thought I’d play the recent downtrend in AUD/NZD if the price is right.
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On the forex calendar, we’ve got a few top tier, potential market movers for the Australian dollar (RBA meeting minutes & unemployment data) and the New Zealand dollar (RBNZ inflation expectations, PPI and global dairy trade data). These events aren’t likely to bring earth shattering surprises to either currency, but I think they could bring enough volatility to bring the market to a more desirable level to play a simple technical setup.
On the one hour chart above, we can see a downtrending market throughout May, and few arguments for potential resistance between the 1.0800 – 1.0900: falling trendline and previous area of interest. And we could see the market get back up to that area as stochastic is now indicating potentially short-term oversold conditions but turning higher.
If we do get a bounce, I do look to put a very small short position because I am on the short-term timeframes. My stop is above the previous swing high last seen around May 10, and I’m keeping my target tight as this is a shorter-term play. Here’s what I’m doing:
Short quarter position AUD/NZD at 1.0825, max stop at 1.0975, max target at 1.0705
Short quarter position AUD/NZD at 1.0900, max stop at 1.0975, max target at 1.0705
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 1.71:1 if both positions are triggered. 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. Also, I’ve still got my USD/JPY short and GBP/CAD short positions working, and with potential top tier events coming for Sterling and Greenback coming, I may have to adjust quickly on those positions as well.