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NZD/USD Channel Short Scalp- Pending Break Below 7780

NZD/USD Channel Short Scalp- Pending Break Below 7780

2011-10-11 18:50:00
Michael Boutros, Technical Strategist
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NZDUSD_Channel_Short_Scalp_Pending_Break_Below_7780_body_Picture_2.png, NZD/USD Channel Short Scalp- Pending Break Below 7780

The NZD/USD has maintained a downside trend since breaking below channel support back in early August as risk assets came under pressure and investors flocked into the safety of the greenback. However the rebound off new trendline support on October 4th offers ideal scalp targets should price action remain below the 76.4% Fibonacci extension taken from the July and August crests at 0.7880. Note that the 20-day moving average now rests just below this level and should help provide some resistance to the topside. A break above the 0.7880 level negates the short-term bias as the NZD/USD pair moves into the upper half of the descending channel formation.

Daily relative strength now approaches RSI resistance at 46 with a rebound to the downside supporting the argument for further kiwi weakness. Also note that the dip into oversold territory in early October bodes well for our outlook on the pair.

NZDUSD_Channel_Short_Scalp_Pending_Break_Below_7780_body_Picture_3.png, NZD/USD Channel Short Scalp- Pending Break Below 7780

A 30min chart highlights our scalp levels noting interim resistance at 0.7820 and 0.7855. Our setup will be triggered with a downside break of channel trendline support with a break below 0.7780 eyeing profit targets at 0.7760, the 23.6% Fibonacci extension taken from the September 27th and October 10th crests at 7740, and 7720. Subsequent support targets are eyed lower at the 0.77-figure, the 38.2% extension at 7670, and 7640.

Key Thresholds

With a 1-hour average true range of 30.36 profit targets on said scalp should remain between 22-28 pips depending on entry. We reckon a break above the topside limit at 0.7880 negates the bias with such a scenario eyeing topside targets at the 0.79-handle and 0.7950.

*Note the scalp will not be active until a confirmed break below 0.7780 or a rebound off 0.7850 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

Significance

Resistance 1 Target

30min

0.7820

Basic Resistance

Resistance 2 Target

30min

0.7850

Resistance 10/10 High

Topside Limit

30min

0.7880

Basic Resistance

Topside Limit Break-Target

30min

0.7940

Resistance 9/27 High

Support 1 Target

30min

0.7760

Basic Support

Support 2 Target

30min

0.7740

23.6% Fibonacci Ext

Support 3 Target

30min

0.7720

Basic Support

Bottom Limit

30min

0.7675

38.2% Fibonacci Extension

Bottom Limit Break-Target

30min

0.7640

Support 9/26 Low

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

0.8149

100-SMA

Daily

0.8226

200-SMA

Daily

0.7957

RSI

Daily

44.85

Average True Range (14)

1hour

30.36

Related Economic Data Releases

Event risk for this scalp is rather negligible and lies primarily with the Kiwi. Highlighting the docket is the September read on the business performance manufacturing index on Wednesday night with investors eyeing the data for insight as to the health of the domestic manufacturing sector. The single greatest risk to this particular setup remains to be extreme shifts in broader market sentiment. As we saw over the weekend, simple rhetoric from French President Nicolas Sarkozy and German Chancellor Merkel was enough to fuel a 3%+ rally in US equity markets, with the kiwi surging as risk flows returned to markets. Should the rally continue to push higher, we will attempt to scalp the topside targets with a breech above our topside limit at 0.7880 giving us the green light for further kiwi gains.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

NZD

10/11

23:00

LOW

QV House Prices (YoY) (SEP)

-

0.1%

NZD

10/12

21:30

MEDIUM

Business NZ Performance of Manufacturing Index (SEP)

-

52.9

NZD

10/12

21:45

LOW

Food Prices (MoM) (SEP)

-

-1.3%

NZD

10/13

0:00

LOW

ANZ Consumer Confidence Index (OCT)

-

112.6

NZD

10/13

0:00

LOW

ANZ Consumer Confidence (MoM) (OCT)

-

-0.6%

Written by Michael Boutros, Currency Analyst with DailyFX.com

To contact Michael emailmboutros@dailyfx.comor follow him on Twitter @MBForex for updates on this scalp and other trades.

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

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