Exotic FX Trade Setups as the Majors Face News Events

With Euro and Pound interest rate decisions on Thursday and a NFP figure being released on Friday, the major currency pairs could be in for a slower week than usual. During such times it cannot hurt to shift our focus to more ‘exotic’ currency pairs which are not affected by the heavy news schedule. Our journey starts with the Australian Dollar versus the Canadian Dollar.

AUDCAD: 20 YEAR RANGE

Ever since 1993 the AUDCAD has been a currency pair which has been in relatively tight range with a maximum width of 3800 pips over more than 20 years of market movement.

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Recent price action on the daily chart is showing a close resemblance with its bigger brother the monthly chart: yet another wedge (magenta trend lines). The contracting wedge is quite wide and hence tradable from bottom to top or vice versa. A bullish break out occurred just recently (Tuesday) which had a strong daily candle closing above the smaller wedge (blue trend lines).

AUDCAUD: TRADE SETUP

Such a breakout could be traded without any extra confirmation or analysis – the trade setup is mentioned in the image below.

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For extra verification purposes a Forex trader could add an oscillator (such as the RSI) to confirm the lack or presence of divergence: on the daily chart the RSI is certainly not at an extreme.

Another way of reviewing a potential entry is by zooming into lower time frames such as the 4-hour chart. Here I see a decent breakout candle… but momentum quickly vanished later on when a pinbar appeared. The RSI has also reached a critical zone. Therefore, a retracement on the 4-hour chart seems imminent before a potential daily breakout occurs.

I will use a Fibonacci retracement tool to understand how far price could retrace: a 38.2 Fibonacci level seems the most likely spot because it has confluence with first trend line support. The stop loss would be below the low (which is slightly lower than the daily candle’s low). The -61.8 Fibonacci target is at +/- 1.0110.

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NZDCHF BREAKOUT

The NZDCHF has a similar breakout as the AUDCAD: a relatively big candle is pushing through a resistance trend line. The RSI is also not in a critical zone.

One of the notable differences between the 2 pairs is the fact that the wedge on the NZDCHF is smaller, which means that the next resistance layer is very close by. An entry at the close of the 4 hour candle means that the target is around the corner and would not justify a normal sized stop loss.

If price were to make retracement to retest the 4 hour candle low, then the discount would provide a trader with enough profit potential to attempt a long – see screenshot below.

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What ‘exotic’ pair do you find interesting? Let us know down below and we can review it in the next blog post!

Thanks for sharing and Happy Hunting!

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