What’s inside:

  • AUDNZD trending strongly lower
  • Price action working towards apex of wedge below resistance
  • Cross not at the epicenter of ‘Brexit’, but still holds risk

AUDNZD has been bouncing around for the past couple of weeks after a significant break of support. The wobbly price action is converging towards a make or break point (apex of a triangle), and with the cross trading below support and the trend remaining strongly lower, probability is skewed towards seeing a move to lower grounds. The triangle isn’t of the highest quality yet, but getting there.

Even though AUD and NZD are not directly impacted by this week’s outcome for ‘Brexit’, volatility will increase across the spectrum of financial markets. With that said, though, these two will likely move in the same direction, just with varying magnitudes. This means AUDNZD is less likely to make an extreme directional move. But caution is still warranted and waiting until the outcome of the vote to make a trade – in any market – isn't a bad idea.

Waiting for further development, assuming ‘Brexit’ doesn’t wreck the pattern (a distinct possibility), could lead to a well-formed wedge with a tight apex from which the cross can break from. Given that the trend direction is strongly lower, if it should break to the upside we will need to watch how it reacts to the 10525/75 zone. Due to the significance of resistance, establishing a long entry doesn’t look very ideal. In fact, if it were to turn up into that zone and see a strong form of rejection (i.e. – ‘pin bar’) then a short trade may be in order to join the multi-month trend lower, or at least see AUDNZD move back towards recent lows near 10400.

Seeking a target based on the next level of support is difficult with nothing meaningful until the 2015 low just above parity. The height of the triangle pattern points to a measured move of about a 130 pip move from the apex.

AUDNZD: Away from the Eye of the Storm, Converging Towards a BreakAUDNZD: Away from the Eye of the Storm, Converging Towards a Break

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX, and/or email him at instructor@dailyfx.com.