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Fading the NZD/USD Rally- Kiwi Short Scalp Setup

Fading the NZD/USD Rally- Kiwi Short Scalp Setup

2011-09-27 20:18:00
Michael Boutros, Technical Strategist
Share:
Fading_the_NZDUSD_Rally-_Kiwi_Short_Scalp_Setup_body_Picture_2.png, Fading the NZD/USD Rally- Kiwi Short Scalp Setup

The NZD/USD pair surged early in the week after reports circulated that European officials were in talks to develop a special purpose vehicle whereby banks will be able to sell distressed sovereign debt for bonds which can be used to access liquidity form the ECB. The pair promptly reversed course, rebounding off of the 0.7765 support level before running out of steam ahead of the 100% long-term Fibonacci extension taken from the November 5th and August 1st crests at 0.7980. This level remains paramount for our trade setup and will act as our topside limit which if breached, will negate our current downside bias. It’s also worth noting that daily relative strength now approaches former support and is likely to encounter resistance here, limiting further topside gains.

As noted in this morning’s Winners/Losers report, the kiwi was the top performer against a weaker greenback as markets rallied on hopes that an imminent Greek default would be averted. However once the euphoria fades, it is likely risk will once again come under pressure as it remains to be seen whether officials will be able to enact such an instrument effectively. In addition, the idea simply aims to avert a default in the interim and does not address the major systemic and structural problems in the region. Accordingly we look to fade this recent rally with our bias weighted to the downside.

Fading_the_NZDUSD_Rally-_Kiwi_Short_Scalp_Setup_body_Picture_3.png, Fading the NZD/USD Rally- Kiwi Short Scalp Setup

A 30min chart sees the pair breaking out of an intra-day channel after surging more than 1.6% against a weaker dollar. Preferred short entry targets are held at 0.7950 and 0.7980. Profit targets are eyed at the 76.4% Fibonacci extension taken from the August 1st and 31st crests at 0.7890, followed by 0.7850, 0.7810, and 0.7765.

Key Thresholds

With a 1-hour average true range of 30.33 profit targets on said scalp should remain between 24-28 pips depending on entry. We reckon a break above the topside limit at 0.7980 negates the bias with such a scenario eyeing topside targets at the 61.8% Fibonacci extension at 0.8019 and 0.8060.

*Note the scalp will not be active until a confirmed break below the 76.4% extension at 0.7890 or a rebound off the 0.7950 resistance level with RSI conviction. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

0.7950

Topside Limit

30min

0.7980

Topside Limit Break-Target

30min

0.8019

Support 1 Target

30min

0.7850

Support 2 Target

30min

0.7810

Support 3 Target

30min

0.7765

Bottom Limit

30min

0.7720

Bottom Limit Break-Target

30min

0.7680

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

0.7952

100-SMA

Daily

0.8246

200-SMA

Daily

0.8345

RSI

Daily

35.45

Average True Range (14)

1hour

30.33

Related Economic Data Releases

Event risk on the scalp setup rests with primarily with the greenback with August durable goods orders on tap for tomorrow. Consensus estimates call for a print of -1.0%, down from a previous read of 4.0%. A worst than expected print could further fuel haven flows which wouldsupport this particular setup. The biggest risk to our bias would be continued strong demand for risk, with such a scenario favoring the high yielding kiwi over the dollar.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

US

9/28

12:30

HIGH

Durable Goods Orders (AUG)

-1.0%

4.0%

US

9/28

12:30

MEDIUM

Durables ex Transportation (AUG)

0.2%

0.7%

US

9/28

12:30

LOW

Capital Goods Orders Non-Defense ex Aircrafts (AUG)

-

-1.5%

US

9/28

12:30

LOW

Capital Goods Shipments Non-Defense ex Aircrafts (AUG)

-

0.2%

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 for updates on this scalp and other trades.

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

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