And I’m in! Stronger than expected Australian quarterly CPI could be the catalyst for an upside breakout and reversal on AUD/NZD. Here’s the setup I was watching.
Just a few moments ago, Australia printed a 0.7% gain in price levels for Q3, much stronger than the estimated 0.5% uptick and the earlier 0.4% increase. This supports the RBA’s view that commodity prices are picking up and translating to positive inflationary pressures, which might be enough for them to keep interest rates unchanged in the coming months.
On the flip side, the RBNZ has already shown its dovish cards a while back, and market watchers are counting on an interest rate cut in their upcoming monetary policy statement next month.
I decided to go long at market (1.0725) with 0.25% risk upon seeing the upbeat results and I set another buy order above the double bottom neckline. I’ve got my stop halfway through the reversal pattern and just slightly below the 1.0500 area of interest then I’ll be aiming for the 1.1175 level as my profit target.
New Zealand still has its trade balance up for release and a weak read could reinforce my bearish bias on the Kiwi. Australia has its import prices data and PPI report lined up in the next couple of days, and more signs of stronger inflation could give AUD/NZD a boost. To top it all off, iron ore prices have been on the rise lately, which is also good for the positively-correlated Aussie.
Here’s what I have:
Long AUD/NZD at 1.0725 and 1.0825 (0.25% risk each), stop loss at 1.0475, and profit target at 1.1175 for a potential 1.3-to-1 R:R.
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See also: Q3 2016 Trading Performance Review