I’m keeping it simple with this AUD/NZD long-term range resistance bounce off 1.0700. Think it’s got enough bearish momentum to head back to the bottom?
AUD/NZD Trade Setup
Since my other watchlist play on AUD/USD doesn’t seem to be showing any directional bias just yet, I’m turning my attention to the Kiwi with this comdoll cross trade. On the pair’s daily time frame, I’m seeing a long-term range between support at the 1.0350 minor psychological level and resistance at the 1.0750 handle.
Price got rejected on its test of the resistance, which means that it might be ready to set its sights back on support or at least until the middle of the range around 1.0550. Stochastic is turning lower from the overbought zone to reflect selling interest. I’ve already shorted at market to catch some of the bearish momentum with a stop past the range resistance and just slightly wider than AUD/NZD’s weekly ATR of 150 pips.
I’m liking this short play because of the positive interest rate differential between the Aussie and the Kiwi. Even though this month’s RBA statement and minutes seemed less dovish than usual, Governor Lowe’s remarks on wanting to see a lower Aussie exchange rate could force the currency to return some of its recent gains. Besides, the Land Down Under had its fair share of weak data this week, printing a surprise 2.1% slump in quarterly private capital expenditure and a 0.2% dip in construction work done for Q4.
As for the Kiwi, the 3.2% slump in dairy prices during the latest GDT auction isn’t doing the currency any favors at the moment but other reports from New Zealand might be enough to give it a fighting chance. Over the weekend, the economy reported stronger than expected PPI readings, with the input component up 1.0% and the output component increasing by 1.5%, so this should keep overall inflation supported.
Here’s what I got:
Short AUD/NZD at market (1.0665), stop loss at 1.0825, profit target at 1.0375. I’ve risked 0.5% of my account on this trade for a potential 1.8-to-1 R:R.
Don’t forget to check out our risk disclosure if you’re trading this one, too!
See also: Q4 2016 Trading Performance Review
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