Top Trade Idea For December 10th, 2014 – AUD/NZD
The weaker inflation figures released from China overnight have been shrugged off by both the AUD and NZD. Investors are perhaps now fully anticipating some more stimulatory action from the PBOC, which would thus be good news for the Australian and New Zealand economies (with China being their largest trading partner). Anyway, I am looking at the AUD/NZD today for three reasons today. Firstly, there is the Reserve Bank of New Zealand’s policy meeting at 20:00 GMT tonight. Although the RBNZ is not expected to alter interest rates at this meeting, the central bank is more likely to talk down the Kiwi once again and deliver a more downbeat assessment of the economy due to the recent falls in commodity prices. This may well provide the catalyst for another sell-off in the NZD. The second reason why I am looking at the AUD/NZD rather than the more closely-followed NZD/USD pair is that I don’t have a very strong view on the USD in the near term (but I am bullish long term), so the market’s response in the cross should be more easy to interpret. The third reason is in the AUD/NZD’s chart:
As can be seen, the AUD/NZD cross is currently holding its own above a key support area at 1.0750/1.0800. This is where a bullish trend line converges with several Fibonacci levels, including the 61.8% retracement of the up move from the January low. The cross has stabilised around this area for a number of days, hence the RSI is now trending higher after recovering from oversold levels. The hesitation here follows a sharp move lower from around the 1.1300 handle where price formed a key reversal pattern at the end of October i.e. a triple top. The neckline of the reversal pattern at 1.0915/30, where we also had the 200-day moving average, was subsequently taken out at the end of November which thus resulted in follow-up technical selling.
Going forward, the abovementioned old support around the 1.0915/30 area could turn into resistance. So, it is definitely worth watching. Ahead of that area is the recent consolidative range high around 1.0860 which yet again may limit the upside. Meanwhile if the bullish trend line breaks down then the AUD/NZD could fall a lot further in the near term – potentially revisiting the yearly low at some point in the near future. In the interim, there are several other potential support levels one needs to keep a close eye on, including the 78.6% Fibonacci level at 1.0660/5 and also horizontal support at 1.0625.
About Fawad Razaqzada
Fawad is FOREX.com’s technical analyst based in London. He entered the FX market in early 2010. Having graduated from Brunel University with a degree in economics, and mentored by some of the industry’s leading experts, he has an excellent understanding of the fundamental drivers of the markets. But it is his unique ability to predict price moves using technical analysis that has made him popular amongst his peers. Fawad is regularly quoted in the leading financial publications such as the Wall Street Journal, Reuters, Market Watch, FT and Associated Press. On a day to day basis, Fawad produces and delivers market commentary and research for FOREX.com, with an emphasis on technical analysis. He achieved his CISI Level 3 Certificate in Investments (Derivatives – Retail) in early 2011.