AUD/NZD Trade Update: Closing Position Ahead Of Targets

A short setup was published for AUD/NZD ahead of Australian inflation data on Wednesday with the view of a bearish outcome following the data.

The Aussie had a mixed reaction to the data. The currency pushed higher against all of its counterparts after CPI was reported to exceed analyst expectations. AUD/NZD spiked back above resistance at 1.0724 but gains were not sustained and the bulk of the rise as a result of the data release was erased by the end of the day.

The decline in the Aussie Dollar following the release has been strong as the currency has led the decliner’s list among the majors on Thursday, and on Friday thus far. Despite extreme levels of weakness in the Australian Dollar, AUD/NZD has not broken below last week’s low.

The technical reasoning for entering the trade have been violated. The trade setup was based on a declining channel on a 4-hour chart, strong overhead resistance, and a weekly bearish engulfing candle.

The declining channel was breached to the upside. While the pair only spike above 1.0724, the lack of seller’s at the level has been concerning. The primary reason, however, for closing the trade ahead of targets derives from the weekly chart. A lack of follow-through on the bearish engulfing print from the prior week combined with a potential bullish inverted hammer print provides a degree of doubt for a continuation lower. In fact, following the recent sharp four weeks of gains from mid-September lows, the weekly chart is pointing to a bullish signal.

With the exchange rate currently at 1.0607, closing the trade still provides a 1:1 risk to reward ratio. As the reward at current levels is acceptable, it is preferred to close the trade as opposed to tightening stop losses.

AUD/NZD Weekly Chart

AUDNZD Weekly Oct 28

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.