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AUD/NZD Ascending Channel Provides Swing Trading Opportunity

AUD/NZD Ascending Channel Provides Swing Trading Opportunity

2011-05-27 16:42:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The approximate 1700-pip range that the AUD/NZD pair has swung in over the past eight months continues to hold, with the pair moving lower once again in the range after topping near the 1.3800 exchange rate in early March. On the heels of astounding Kiwi strength, the antipodean currency pair finds itself testing the bottom of an ascending channel that has been carved out since late December. Similarly, the pair is testing a five-plus month descending trend line that meets in the same area. With the pair at an extreme technical level, an opportunity to swing trade the AUD/NZD pair back towards its 200-SMA looks to have arisen if the pair is able to resist breaking out to the downside.

Levels to Watch:

-Range Top: 1.4020 (Trend)

-Range Bottom: 1.3100 (Trend)

audnzd_ascending_channel_provides_swing_trading_opportunity_body_Picture_1.png, AUD/NZD Ascending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Suggested Strategy

  • Long: Place an entry at 1.3150
  • Stop: Set the stop to 1.3050 (100-pip risk)
  • Target: The first target is 1.3357 (100-SMA, move up stop to 1.3300), second target is 1.3703 (May High)
  • Timeframe: 7 to 14 days

Trading Tip The AUD/NZD pair is currently the bottom of its ascending channel, and falling trend line, from the December 2010 high to the May 2011 low, extended further along the timeline. That said, although the pair is at an extreme sentiment level already, entering a long play just yet would be too risky, considering a breakout to the downside is a distinct possibility, considering recent Kiwi strength. However, a slight rebound would certainly make a long AUD/NZD pair swing trade more appealing. With the RSI at 33 on the daily chart, and at 22 on the 6-hour chart, the AUD/NZD pair looks prepared to let some steam out from underneath it and amid some short covering; the pair has fallen every day since last Friday. The other technical indicators we note also point towards gains: the MACD Histogram appears to have peaked, with the differential extremely bearish, at -45; the Slow Stochastic oscillator on the 6-hour chart also points towards gains, having just issued a buy signal, with the %K greater than the %D, now at 14 and 13, respectively.

Event Risk for Australia and New Zealand

Both antipodean countries have event risk on the calendar for next, with the bulk of the data released coming between Tuesday and Thursday. The beginning of the week is heavier on data for New Zealand, while Australia has most of the data to be released in the latter half of the week. The data leans slightly in favor of the Kiwi, though.

Australia – Australia has some significant data out next week, though most of it comes on Wednesday and Thursday. On Thursday, first quarter growth readings are due, and despite having an economy that has inflation in check and a strong labor market, a particularly resilient Aussie over the past few months could weigh on trade data, leading to a disappointing aggregate growth figure.

New Zealand – The other antipodean nation has data that has been historically market moving, due at the beginning of the week mainly. Trade balance data is due at the start of the Asian session on Monday morning, and, like Australia, the strength of the domestic currency could have weighed on exports in April. Of the data due later in the week, the NBNZ confidence and outlook readings could continue their trend of rebounding, further bolstering the data.

Data for May 29 to June 3

Data for May 29 to June 3

Date

Australia Economic Data

Date

New Zealand Economic Data

May 31

Current Account Balance (1Q)

May 29

Trade Balance (APR)

May 31

AiG PMI (MAY)

May 31

NBNZ Activity Outlook (MAY)

June 1

Gross Domestic Product (YoY) (1Q)

May 31

NBNZ Business Confidence (MAY)

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

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