With major event risk ahead for the Kiwi, I thought it was time to take another look at AUD/NZD. Will the Fibs be a good play on the longer term trend?
AUD/NZD Resistance at Fibs?
Kiwi bulls have enjoyed some sweet gains against the Aussie since AUD/NZD peaked back in March, but consolidation was the name of the game throughout June trading. Volatility could pick up a little bit with the upcoming Reserve Bank of New Zealand monetary policy meeting tomorrow, and if it does I’ll look to play that swing trend lower.
There’s actually a couple of ways to play this consolidation pattern we’re seeing at the moment. First, waiting for a downside break of the range or rising trendline marked in the chart above with some bullish NZD news from the RBNZ is a nice setup. But for me, I’m going a little bit conservative with my entry by looking for a bounce to the Fibonacci retracment area to get in at a better price. I find it hard to get super bullish with the RBNZ not likely to support a hiking bias, and even possibly even getting a little dovish in their rhetoric to help bring down the Kiwi’s trade-weighted value. In the latter case, I may have to cut this idea quickly.Until then, my plan is to hop in around the Fibs with my usual weekly ATR stop to keep my max loss small, and my initial target will be around the strong support area that held around the end of 2016. Here’s what I’m doing:
Short half position AUD/NZD at 1.0580, max stop loss at 1.0745, initial target at 1.0415 for an initial 1:1 return-on-risk potential.
I’ll be risking only 0.5% of my account on this position and I’ll look to re-assess to potentially reduce my risk and maximize my gain if I’m triggered and the market still has strong downward momentum around my first target. My next target from there would ultimately be the 2015 swing low around 1.0100 for a very juicy potential return-on-risk.
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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