Australia jobs data is just up ahead which could get me to play my short bias on AUD/NZD at a better price!
AUD/NZD Resistance Retest?
AUD/NZD has been in a solid downtrend for quite some time now, ever since hitting a high just under 1.1200 back in August 2018, to current trading around 1.0450 handle. This area also happens to be a major support area, bringing in buyers between 1.0350 – 1.0500 going back to the Summer of 2016.
But it looks the market is starting to crack for the bears as it holds below the 1.0500 major psychological area, likely on growing weak sentiment on Australia that will likely have the Reserve Bank of Australia hold the cash rate at 1.50% or possibly even see it go lower if economic risks continue to rise.
The Reserve Bank of New Zealand on the other hand was surprisingly leaning towards a rate hike more than a rate cut last week, which sent the Kiwi rocketing higher in reaction to their monetary policy event. With the RBNZ pretty confident of New Zealand’s economic outlook, it only makes sense to buy Kiwi dollars over Aussie dollars, especially if we see positive developments from the U.S.-China trade negotiations, which would likely bring on positive global risk sentiment.
Moving on to the four hour chart above of AUD/NZD, the pair has been trading mostly sideways over the past couple of months, but still grinding lower on the higher time frames. I’m going to short if the market can get back up to the previous consolidation area between 1.0475 – 1.0525, which could happen with the upcoming Australian jobs data. The expectations are for a weaker net jobs growth, but we could see a “buy-the-rumor, sell-the-news” scenario to push the market higher.
If the market gets up to my sell points, I’m going to start with a nibbler position and giving the trade one weekly ATR to breathe. My max target is the major support area that held back in to 2015. Here’s what I’m doing:
Short half position at 1.0475, max stop at 1.0640, max target at 1.0150
I’m only risking 0.50% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential starting return-on-risk of just under 2:1. I want to get up to 1.00% max risk eventually, which I’ll likely add if the pair gets back up to the top of the consolidation range, or if I’m in the trade then a break of the major support area around 1.0350. What do you guys think? Let me know in the comments section below!
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