The AUD and NZD have been in strong downtrends versus the USD but both pairs are showing significant retracements and corrections. Are their trends to resume soon?
Although the Reserve Bank of Australia (RBA) decided to keep its interest rate stable this week at 2.25%, the downside pressure on the future development of the rates will probably not change. Sluggish economic figures have been taunting Australia for a while and the rate is expected to decrease in one of the upcoming meetings by a quarter of a percent to 2%. In the screenshot below it becomes evident that back to back rate cuts by the RBA are in fact not so common and a period of pause between 2 cuts is more likely.
From a technical point of view the Australian Dollar (AUD) posted a bullish candle on the day of the rate decision (Tuesday). In fact, the AUDUSD currency pair is even showing bullish engulfing twins but the candle stick pattern is appearing in the middle of consolidation (blue/red line) after a substantial downtrend (red arrow).
Therefore, considering both the technicals and fundamentals of the AUD and USD, I myself am only interested in shorting the currency pair and will avoid taking longs until significant evidence of the opposite is present. A break above the January high at +/- 0.83 would be the first step required before I consider any longs.
In my view two areas are the best equipped for trading short trade setups on the AUDUSD:
- A bounce at the resistance zone near the top of the bear flag (red line). I want to see a candle stick confirmation where price is respecting the resistance line with a pinbar or shooting star.
- A break below the engulfing twins (purple circle) and the support zone at the bottom of the bear flag (blue). In case of the breakout I need to receive a candle stick confirmation where price is breaking below the support line with a strong candle close near the low (and indicating lack of weakness or a false break).
A candle stick pattern at one of these decision spots would seal the deal for a short. The main target in my view is the -27.2% Fibonacci level at 0.7440. Read here more about potential breakouts on the GBPAUD as well.
The New Zealand Dollar managed to retrace back against the US Dollar. In fact the NZDUSD moved up some 500 pips before stopping at a confluence of resistances: the 61.8% Fibonacci retracement level (blue) of the last bearish swing high and swing low and the broken support level of the previous consolidation (orange line).
Despite the bullish price action of late, I consider the presence of a bigger down trend to be more important at this point. The trend and momentum are best captured by the moving average (magenta) and price flow (red arrows).
Therefore, similar to the AUDUD I am only looking for shorts on the NZDUSD. In my view the current bullish trend channel (blue lines) is the major decision spot. I am monitoring a push below the key bottom (purple) and channel (blue) with a strong candle for a bearish breakout setup (orange arrow). The target is the -27.2% Fibonacci level and round level of +/- 0.70.
What are your views on the rate cut?
Are you looking for shorts on the NZD and AUD as well?
Thank you for sharing this post and wish you Happy Hunting!
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