Trade Idea: AUD/NZD Support Breakdown?

What’s up forex friends! We’re finally seeing some directional moves in the currency market, including some really interesting price action in AUD/NZD. After topping out around 1.1000, is the bottom of the range back in sight?

AUD/NZD Trade Idea

AUD/NZD 4-Hour Forex Chart

AUD/NZD 4-Hour Forex Chart

Up above, we’ve got the four hour chart on AUD/NZD and I spot a couple of things that has me potentially putting on a swing short position:

  • Lower highs from the 1.1000 top, leading to a break below the previous strong area of interest around the 1.0750 handle
  • 100 SMA moving below the 200 SMA

The technical arguments align with my fundamental bias of the Kiwi over the Aussie, mainly on how the Reserve Bank of New Zealand could possibly raise rates within the next few years, while the Reserve Bank of Australia recently showed concerns over jobs data and the housing market. Could stimulative action (i.e., more rate cuts) be ahead from the RBA? Let’s also not forget the slight interest rate differential in favor of the Kiwi, great for carry traders.

So, the arguments are there for further pressure on AUD/NZD for now, and with catalysts coming up for both currencies that could get the pair moving (quarterly CPI data), I’d like to a short with a little bit of a bounce back up to that strong level of interest. My stop will be one weekly ATR to give the market room to dance around after the upcoming inflation data, and my max target is that strong support area that disappointed the bears all throughout 2014 to 2016. Here are the deets:

Short AUD/NZD at 1.0750, stop loss at 1.0925, profit target at 1.0400

I risked 0.50% of my account on this setup for a potential 2:1 return-on-risk. Don’t forget to check out our risk disclosure if you’re trading this one, too!

Cheers,

Happy

See also: Q1 2017 Trading Performance Review