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AUD and NZD Divergence a Common Characteristic at Turns

AUD and NZD Divergence a Common Characteristic at Turns

Jamie Saettele, CMT, Sr. Technical Strategist

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I’m still watching the AUDUSD and NZDUSD and expecting larger corrections into early June. In fact, divergence at the current juncture between the AUDUSD (new low) and NZDUSD (above previous low) is suggestive of a turn. With this in mind, NZDUSD longs might be the better idea going into June with a stop under 7450.

Yesterday’s sharp decline in equities also produced a 20 day high in TRIN, which can signal a panic type of bottom. A simple strategy is to buy the AUDUSD or NZDUSD (buy risk) on the TRIN signal and exit 5 days later. I’ve presented this strategy at our seminars in Las Vegas (click on the Innovative Techniques link above) in recent years and the updated backtest is presented below.

I’m also closely monitoring the USDJPY / US yield situation.

AUDUSD and NZDUSD Daily Closes

AUD_and_NZD_Divergence_a_Common_Characteristic_at_Turns_body_audusd.png, AUD and NZD Divergence a Common Characteristic at Turns

Prepared by Jamie Saettele, CMT

The low in the AUDUSD is not confirmed by the NZDUSD. The implications are for a recovery into early June. It’s usually better to buy relative strength thus I favor NZDUSD longs over AUDUSD longs. NZDUSD Trading Levels: 7450 7490 7600 7650 7740 7810

AUDUSD / 20 Day High in TRIN 5 Year Backtest (hypothetical results)

AUD_and_NZD_Divergence_a_Common_Characteristic_at_Turns_body_Picture_2.png, AUD and NZD Divergence a Common Characteristic at Turns

Prepared by Jamie Saettele, CMT

Yesterday’s sharp decline in equities also produced a 20 day high in TRIN, which can signal a panic type of bottom. A simple strategy is to buy the AUDUSD or NZDUSD (buy risk) on the TRIN signal and exit 5 days later. I’ve presented this strategy at our seminars in Las Vegas (click on the Innovative Techniques link at the top of the report) in recent years. The logic for the above backtest is simple; buy the AUDUSD is TRIN reaches a 20 day high and exit the trade 5 days later.

USDJPY (Black) and 10-year Yield Differential (Red)

AUD_and_NZD_Divergence_a_Common_Characteristic_at_Turns_body_yen.png, AUD and NZD Divergence a Common Characteristic at Turns

Prepared by Jamie Saettele, CMT

The chart above depicts USDJPY and the difference between 10 year yields on US and Japanese paper. Lows in the yield differential have tended to occur before large rallies in the exchange rate. The differential is at a record low right now yet the USDJPY remains above its record low. Divergence between related markets is a characteristic that is common at turns. 7830 is support.

To contact Jamie e-mail jsaettele@dailyfx.com. Follow me on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

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

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