AUD/NZD has been on a steady grind higher over the last month, but it looks like recent support could be wearing thin. Is the latest move lower a sign of the bears taking control?
AUD/NZD Trendline Break?
On the four chart above of AUD/NZD, we can see the pair has been in a grind higher since late April after a quick rebound from the pandemic lows just above the 1.0000 major psychological level.
But in the last few sessions, the market has not only retested the rising “lows” pattern marked on the chart below, it’s now starting to trade below that pattern to signal a shift in direction could be coming soon.
The question now is, what could the catalysts be for a direction change? Well, it could come from two upcoming top tier events: Australian employment data and the RBNZ‘s latest monetary policy statement.
The upcoming Australian jobs event could be another disappointing one based on the recent Australian PMI updates, both manufacturing PMI and services PMI showing a deep contractionary environment, including a reduction of employment.
As far as the Reserve Bank of New Zealand’s upcoming monetary policy decision, recent commentary from the RBNZ suggests the Overnight Cash Rate (OCR) will likely hold at 0.25% until next year and that quantitative easing will not expand any time soon.
And given New Zealand’s excellent job of battling COVID-19, effectively becoming virus-free and now reopening their economy, it’s more likely we’ll get positive rhetoric from the RBNZ on the economy than an extremely negative outlook.
So with that, I could be dead wrong but I think the odds are more in favor of the bears than bulls for now, especially given the long run higher. I look to play the pair to the short side and my entry plan is to scale up to the top of the Fibonacci retracement area with a stop not too far above that.
My target will be the broken resistance area that was a reversal point before the pandemic hit. Here’s what I’m doing:
Short half position AUD/NZD at market (1.0706), max stop at 1.0840 with 0.50% risk, initial target at 1.0500
Short half position AUD/NZD at 1.0775, max stop at 1.0840 with 0.50% risk, initial target at 1.0500
I’m only risking 1.00% of my account on this trade if both orders are triggered, and I’ve got a potential return-on-risk of around 2.86:1.
Based on what happens with the previously mentioned catalysts and with how the pandemic & global economy develops, I may change this plan if it makes to do so.
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching AUD/NZD for a potential swing position as well? Let me know in the comments section below!
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