Checking out the range and taking a small shot on AUD/NZD on hopes that volatility will pop up on upcoming catalysts from New Zealand and Australia.
AUD/NZD Range Support Ahead?
Coming this week, we’ve got the latest monetary policy decision from the Reserve Bank of New Zealand (some expect an interest rate cut 25 basis points) and the monthly Australian employment update (Analysts expect a net job addition of 18,000 in October). So both currencies should be plenty busy, which means a potential trade setup for AUD/NZD.
On the four hour chart above of AUD/NZD, we can see the pair has been in a clear range pattern, oscillating roughly between 1.0700 to 1.0800. Recently, the pair has reversed back to the downside after failing to break the top once again, and possibly on its way for another retest of the bottom of the range.
Fundamentally, I’m neither bullish or bearish on this pair as they are both are seeing relative economic weakness and in a rate cutting cycle, which is why I think we’re in this ranging pattern and I think the odds are pretty good that it will continue.
So, I’m looking to buy another retest of the bottom of the range, which has good odds of profitability if the RBNZ cuts again and that outcome isn’t priced in beforehand. Right now, it doesn’t seem like it is given the Kiwi’s strength today but we’ve still got time until the event so we’ll see where the Kiwi goes next.
My stop will be the weekly ATR to give the trade room to breathe, and if this week’s events and market reactions do play in favor of a long position, I’ll likely hold out to take profit at the top of the range. Here’s what I’m doing:
Long half position AUD/NZD at 1.0710, max stop at 1.0590, max target at 1.0850
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 1.27:1. But I’ll likely cut out of this trade by next week, again, all depending what we see from the data and RBNZ this week. Of course, if the stars line up for a potential longer-term swing play, then I won’t hesitate to adjust my plan to keep risk low and maximize the profit potential.
What do you guys think? Are you watching AUD/NZD and looking to play the range? Let me know in the comments section below!
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