As a technical trader, I generally try to avoid taking on new trades ahead of major economic releases such as the tomorrow's Non-Farm Payroll report (8:30 Eastern, 12:30 GMT). However, certain regional currency pairs tend to be insulated from the binary “risk on / risk off” reaction that these announcements can cause. The AUD/NZD is one such currency pair that moves independently from the so-called “risk trade,” and conveniently, is showing a clear technical signs of breaking lower in the near future.
First, the daily chart indicates that, after a brief bounce early in the week, the AUD/NZD is once again testing 2-week lows near the 20-day EMA. This level is reinforced by the 38.2% Fibonacci retracement of the run up from the late June low at 1.2672 (point A) to last week’s high at 1.3077 (point B). A break below these converging levels of support would open the door for a run down to the 50% retracement at 1.2875 or more likely, the 61.8% level near 1.2825. As a final bearish signal on the daily chart, the pair is currently carving out a Bearish Pin candle*, or inverted hammer, indicating that sellers are eagerly waiting in the wings to sell any intraday bounces.
Meanwhile, the 4hr chart suggests that the 1.2915 level has been the line in the sand for buyers. The descending triangle pattern (below) implies a strong continuation lower if 1.2915 is broken, makes the entry level into a trade relatively clear.
To take advantage of a potential break lower, traders could set a stop sell order at 1.2908 (below converging support at 1.2915) with a stop at 1.2970 (above today’s high) and a target at 1.2840 (above the 61.8% Fibonacci retracement on the daily chart). This trade would be invalidated if not triggered by the end of this week’s trade.
Potential Strategy: Sell if AUD/NZD drops below 1.2908, stop at 1.2970, target at 1.2840.
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