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I’ve got a strong bullish bias on the Kiwi because of upbeat fundamentals, and I’m expecting additional AUD volatility with catalysts lined up. Here’s the setup I’m watching on AUD/NZD:

Short AUD/NZD Idea

The pair just recently broke below the long-term support around the 1.0600 major psychological level then dove to 1.0400 before pulling up for air.

Applying the handy-dandy Fib tool on the latest swing high and low on the 4-hour chart shows that the 50% retracement level coincides with the broken support, which might now hold as resistance.

Stochastic is still pointing up and has yet to turn down from the overbought zone before signaling a return in selling pressure. With that, I’m eyeing a potential short around 1.0575 with a stop past the 61.8% Fib or 1.0700 mark.

AUD/NZD 4-hour Forex Chart
AUD/NZD 4-hour Forex Chart

As my buddy Forex Gump noted, there are plenty of top-tier events lined up for the Aussie this week. Earlier today, the RBA sounded slightly optimistic in their policy statement, brushing off the recent economic setbacks.

However, Australia has yet to print its quarterly GDP and monthly trade balance, so market watchers could get a better idea of how the economy is really faring.

Aside from that, China is also scheduled to release its trade balance and CPI data later on. Most of China’s reports have been disappointing lately, hinting that a slowdown may be going on. This could lead to another sharp fall in iron ore prices, which appear to have gotten a bit of a boost on restocking reports.

As for the Kiwi, the currency has been supported by rising commodity prices as reported by ANZ and yet another gain in dairy prices during this week’s GDT auction. Heck, the index has been printing positive readings for the past six instances already!

I haven’t set any actual short orders just yet since I plan on waiting for the rest of Australia’s reports to be released to gauge if I should be going for a pullback or trying to catch a breakdown instead.

To be specific, I’ll see if price retraces to the 1.0600 area or if it makes a strong move below the swing low at 1.0400. What do you guys think of this setup?

 

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