(AUD/NZD= Aussie/Kiwi = Australian bird = Kylie)
The AUD has been on a bit of a roller coaster lately and this is one of the AUD crosses I get asked about more than any other. Traders have been watching for a bottom in this pair for at least the last 18 months. 1.05 are key historical lows for this pair (1995, 2004, 2005 & 2014) and the market has been trying to get a toe hold here, can it bottom here? We take a look.
There are lots of fundamental macro reasons to like it to bottom here, not least the interest rate differential.
This chart is from the excellent Macro Man Blog http://macro-man.blogspot.co.uk/2016/08/and-now-for-something-completely.html and well worth a read.
Now for the technical reasons why we like Kylie this month. This chart shows the head and shoulders pattern that has been building since 2014 and why the equal measured moves within the equal measured moves mean we could have good support at 1.04.
There are also a couple of harmonic patterns lining up for long signals in AUDNZD, the bigger one is a bullish Gartley pattern from the April 2015 low.
Gartley patterns are trend continuation patterns and work best when the AB and CD legs are equal measured moves which is the case with this one. This is a trend continuation move because AUDNZD reversed the downtrend in July 2015 with a higher high (above the November 2014 high).
Should I just buy it here?
We could buy it here because the Fibonacci support at 1.0340-50 is valid (and AUD loves an 0.886 retrace) BUT … What I have also noticed is that long bull and bear runs usually end in butterfly harmonic patterns or Elliott Wave ending diagonals. Gartley patterns that fail usually extend into Butterfly patterns.
How would that look in this trade and how would we know? A move to marginal new lows and the ideal butterfly entry at 1.0250 to 1.0268 shown here:
How to trade it
I am putting an order to buy at 1.0259 and my stop is at 1.0140. My targets are 1.08, 1.12 and 1.17 and 1.19. If we don’t make a new low and we trade above 1.0440 that would also signal to me that a low is in and trigger me long for the same targets. I am a swing trader and prepared to have a couple of goes at this trade.
No trade is a sure thing and it seems like a lot of people are looking at this. So manage your risk accordingly and always use stops. I am looking to buy it in the next week or two.
29 September update
The rally has stalled at first resistance, the 0.236 fibonacci retrace from the August 2015 highs and the 0.618 fibonacci retrace from the July 2016 high. We expect some back and fill before higher. 1.0437 looks like a pretty good level to add (see 4hr chart below)