AUD/NZD Within Bullish Channel, Downside Break Confirms Bear Flag
Matt Simpson | Jun 19, 2014 01:47AM ET
With AUD/NZD trading at a 4-week low (and back within a trading range it took 4-months to break out of) the medium-term bias favours further downside taking the technicals and rate differential into account.
SUMMARY:
- Hunt for yields favour both AUD and NZD, however NZD has the advantage
- Technicals favour further downside and I don't expect to see 1.105 high tested again this year
- Near-term favours retracement up towards 1.08/85
- 1.085 is a key level which may provide bearish set-ups
- Below 1.074 confirms bearish flag
Following the rate hike from RBNZ the AUD/NZD topped out at 1.1035 which has several key technical areas of resistance. It is the 50% retracement between Oct '13 highs and Jan ' 14 lows (not pictured) and also the 50-week sMA and eMA. The weekly charts closed with the heaviest loss in 15 weeks with a trading range it had taken 4 months to break out of and confirm an Evening Star Reversal pattern to warn of further losses ahead.
Whilst the overall bias is to trade lower, I also suspect we will see a bullish retracement within last week's range over the coming week/s as we continue to trade within the bullish channel / potential bear flag.
Something to consider is that with the Dovish comments from Yellen and interest rates likely to remain near zero for a "considerable" amount of time, both the AUD and NZD can expect to be support from investors seeking higher yields. However with AUD and NZD in different parts of their economic cycle (and paying different interest rates) then I suspect to see NZD to outperform AUD over the coming month/s.
D1 offers several areas of resistance around 1.085 comprosing of 50-day eMA/ sMA and Monthly pivot. Any advance up to thiese leves will grab my attention for bearish setups to anticipate a downside break of 1.074. This is an imprtant level as it is the Monthly S1, May swing low and lower trendline - so if it does break it is considered to be more significant.
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