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NZD/CHF- Directional Scalp Trade

NZD/CHF- Directional Scalp Trade

2011-05-26 19:07:00
Michael Boutros, Technical Strategist
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NZDCHF_Directional_Scalp_Trade_body_Picture_2.png, NZD/CHF- Directional Scalp Trade

The New Zealand Dollar and the Swiss Franc present a unique scalping opportunity between the ranges of 0.6950 and 0.7050. As both of the currencies continue to strengthen, the cross has seen the pair remain range bound for the better part of a month. New Zealand continues to be a strong performer on the economic front, and with the central bank boasting a 2.5% interest rate, the biased on this particular scalp is to the upside.

A daily chart sees the pair continuing to bottleneck into a triangle formation, giving additional points of reference should the pair break out of our designated range. After testing 12-month lows in March at 0.63752 (second trough of the Fibonacci extension) the pair topped out just shy of the 0.72--handle before rebounding off the 50% retracement of the March advance. The chart sets the stage for further gains for the kiwi.

NZDCHF_Directional_Scalp_Trade_body_Picture_3.png, NZD/CHF- Directional Scalp Trade

Relative to the dollar, both component currencies have appreciated more than 7.25% over the last three months as the swissie benefits from haven flows in Europe and the kiwi benefits from higher commodity prices and interest rate differentials. The simultaneous advance in both currencies should see the pair continue to range-trade, with the pair expected to climb in the coming days.

NZDCHF_Directional_Scalp_Trade_body_Picture_4.png, NZD/CHF- Directional Scalp Trade

Scalps to the topside are favored here noting quick shorts from the provided resistance target levels are feasible. Preferred entry points are eyed at the 23.6% Fibonacci extension taken from the March 2009 and March 2010 trough at 06950, followed by 0.6980, and 0.6995. With an hourly average true range of 23.73, profit targets should be between 15-20pips depending on entry, with targets eyed at 0.7020 and 0.7050.

Key Thresholds

A break below the 23.6% Fib extension puts the trade on hold, with a move below the 0.6930 level nullifying this particular scalp. A breach above the resistance 2 target followed by a move past 0.7060 presents the opportunity for longs to the 0.7090 level with stops placed just below 0.7050. Ultimately, the pair will encounter strong support at the 0.7140 resistance level. The trade will remain active until such time when the topside/bottom limits are compromised.

Indicator

Timeframe

Level

Fibonacci Extension – 23.6%

Daily

0.6950

Fibonacci Extension – 38.2%

Daily

0.7310

10-SMA

Daily

0.6988

20-SMA

Daily

0.6961

50-SMA

Daily

0.6947

RSI

Daily

56.28

Resistance 1 Target

30min

0.7020

Resistance 2 Target

30min

0.7050

Topside Limit

30min

0.7060

Topside Limit Break-Targets

30min

0.7090

Support 1 Target

30min

0.6980

Support 2 Target

30min

0.6950

Bottom Limit

30min

0.6930

Average True Range

1hour

24.4

Related Economic Data Releases

With no economic data scheduled for either country for the rest of this week, event risks to the pair should be limited. However, with liquidity expected to fall for the next couple of sessions on account of the Memorial Day holiday in the US, volatility could keep the pair in a tight range until the later next week.

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Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex

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

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