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Breaking The Bank

Breaking The Bank

2011-06-07 11:43:00
Walker England, Trading Instructor,
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Another exotic currency pair that demands to be noticed is the GBP/NZD. There are no direct correlations between the two economies solely based on their geographical locations. The pair has been in a continued downtrend dating back passed 2002 and dropped as much as 9000 pips from its 2009 high to present lows.

The big news on the plate for this week’s Economic Calendar is the next RBNZ (Reserve Bank of New Zealand) rate decision on June 8th and the BOE (Bank of England) rate decision set for June 9th. Currently, both banks are predicted to hold rates flat at their respected rate. If after these decisions are made, fundamental conditions remain the same, it is reasonable to predict that our trend will continue. A change in policy, by either bank, could potentially break the pair to new lows or reinforce support at current levels.

GBP.NZD06.07_body_Picture_1.png, Breaking The Bank

Price Action

Taking price in to a 4Hr chart we can see price closing in on the current all time low for the pair at 1.9916. This coincides directly with our previously established low in January of 2010 forming a direct line of support. Price will do either one of two things at this price level. If support falls, we can look for our trend to continue with lower lows being formed. Alternatively, support may hold and a double bottom will be established. This would allow prices to temporarily rise higher.

GBP.NZD06.07_body_Picture_2.png, Breaking The Bank

Trading Opportunity

My preference is to sell a break of support and look for the GBP/NZD trend to continue. Entry orders should be placed below the previous low of 1.9893. Stop losses can be placed at the previous high above 2.0250. Profit targets will look for new all time lows under 1.9200. This 700 pip target gives us a clear 1:2 risk/ reward level.

Alternative scenarios include a double bottom formation being established, and the GBP/NZD gaining counter trend momentum.

Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email instructor@dailyfx.com to be added to the distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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