AUD/NZD Correction Offers Scalp Targets

A daily chart shows the AUD/NZD pair holding below interim resistance at the 23.6% Fibonacci retracement taken from the May 4th descent at 1.2650. Although yesterday’s early rally in equities faded throughout the session, we note that the kiwi continued to outperform the aussie pressuring the pair to the downside. With equities quickly paring some of the overnight gains seen in overnight futures trade, it’s likely that risk will continue to taper off here. A downward sloping RSI of 49.97 gives conviction on the trade as the indicator has been unable to best the 55 level since early may. A close look also sees a 5-wave advance off the August lows, with a move lower here confirming the start of a possible 3-wave correction before moving higher. Therefore we will wait for a confirmed break below the 1.26-figure to initiate the trade.

A 30min chart shows kiwi gains outperforming those of the aussie as the pair continues to come off the one-month highs put in yesterday. A Fibonacci extension taken from the July 27th and August 22nd crests gives us our downside levels with initial profit targets held at 1.2575, backed by the 50% Fibonacci extension at 1.2555 and 1.2530.Resistance holds at 1.2620 followed by the 23.6% Fib extension at 1.2650 and 1.2680. We reckon a break above this level negates the bias with topside extended targets eyed at 1.2720.

Key Thresholds

Note that with a 1-hour average true range of 26.01, profit targets on said scalp should be between 20-25 pips depending on entry. Note the scalp will not be active until a confirmed break below the 1.26-handle or a rebound off of resistance target 1 at 12620.Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Reference Values

Related Economic Data Releases

Both sovereigns present a level of event risk over the next 24 hours with New Zealand trade balance figures on tap tonight. Consensus estimates call for a deficit of 100M, down from a previous surplus of 230M, as exports slumped while imports rose in July. Australia releases the June Conference board leading index overnight with traders closely eyeing the data as the isle-continent continues to show signs of sluggish growth.

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Written by Michael Boutros, Currency Analyst for DailyFX.com

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