Daily Technical Analysis by Kate Curtis from Trader's Way

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364

AUDUSD’s downtrend might be cut short, as price has formed a reversal pattern on its 1-hour time frame. A double bottom formation can be seen after the pair failed in its past two attempts to break below the .8050 minor psychological support level.

The neckline of the chart pattern is located at the .8150 minor psychological resistance, a breach of which could mean a hundred-pip move up to the .8250 minor psychological mark. If the neckline holds as resistance, price could move back to the previous lows to create another bottom.

Stochastic is moving higher, indicating a buildup in buying pressure. This could mean a move north is in the cards, right until the indicator reaches the overbought area and reflects a rally exhaustion.

In the previous US session, the Fed released the minutes of its latest monetary policy meeting and indicated that it is in no rush to hike interest rates for the first quarter of the year. Even though the minutes showed concern about weakening inflationary pressures and the downturn in the global economy, it also indicated that the Fed is confident about the domestic economy and the pickup in hiring and spending.

With that, the US dollar could continue to draw strong demand in the longer run but traders might be looking to profit off their recent long USD positions. This could still depend on the outcome of Australia’s retail sales report and China’s inflation readings due later this week.

Australia is expected to show a 0.3% uptick in consumer spending, weaker compared to the previous 0.4% gain, while China could show a 1.5% annual CPI figure. Traders are also likely to pay close attention to the producer price index, which is slated to show a 3.1% decline.

Earlier today, Australia reported a stronger than expected building approvals report, which noted a 7.5% increase versus the projected 2.7% drop. Only the initial jobless claims is lined up from the US economy today.

By Kate Curtis from Trader’s Way

365

AUDJPY’s recent downtrend might be over, as price formed a double bottom pattern on its 4-hour time frame. As you can see from the chart, the pair bounced off the 96.00 major psychological support a couple of times and found resistance at the 98.00 handle, which is the neckline of the formation.

Price is still gearing up to make another test of the neckline, with a potential upside break likely to confirm the reversal. In that case, AUDJPY could climb by an additional 200 pips, which is the same height as the chart pattern. This could lead to a move up to the next resistance at the 100.00 major psychological level.

Stochastic is already giving the overbought signal though, which means that Aussie bulls are feeling exhausted. If resistance at the 98.00 mark holds, the pair could make another test of 96.00 support and form a triple bottom, which is still a valid reversal pattern.

Consolidation is also possible, as traders await more directional clues from the market. Earlier today, Australia reported a weaker than expected retail sales increase of 0.1% versus the projected 0.3% uptick. This was also lower compared to the previous 0.4% uptick.

Also released today were Chinese inflation readings, which incorporated the downturn in oil prices. The CPI stood at 1.5% as expected but producer prices marked a worse than expected 3.3% decline, which could mean weaker inflationary pressures down the line and potentially lower demand for Australia’s raw materials.

There are no reports due from Japan, which means no event risks for the yen. However, the upcoming release of the US jobs figures could impact market sentiment and eventually dictate yen price action. Risk-off moves could lead to more demand for the lower-yielding yen while a pickup in risk appetite could spark a neckline break for AUDJPY.

By Kate Curtis from Trader’s Way

366

GBPUSD is showing signs of a pullback, as price previously found support near the 1.5000 major psychological level. Using the Fibonacci retracement tool on the latest swing high and low on the 4-hour time frame indicates that the 61.8% Fibonacci level lines up with a former support zone.

The broken support lines up with the 1.5500 major psychological level, which might act as strong resistance in the event of a major pullback. However, a shallow retracement might be possible, as stochastic is already indicating overbought conditions.

With that, the 38.2% Fib or the 1.5300 major psychological level might already hold as resistance before selling pressure picks up. In that case, price could test its former lows near the 1.5000 mark or perhaps make new ones.

GBPUSD has been on a steady downtrend in the past months, as the weaker odds of BOE tightening forced the UK currency to head lower. In addition, the increased prospect of Fed rate hikes for this year provided support for the US dollar, along with risk aversion spurred by geopolitical tension.

Last week, the US printed another strong NFP report, hinting that the jobs market has picked up steam and may be in for more developments. This could push the Fed closer to tightening later this year, although some labor components reflected weaknesses. In particular, the participation rate marked a decline while wage growth was absent, forcing the dollar to retreat slightly.

However, the path of least resistance for GBPUSD is still to the downside, as the US remains fundamentally stronger compared to the UK. With that, the selloff could resume sooner or later, depending on the market catalysts.

For today though, there are no main event risks from both the US and the UK as there are no top-tier releases lined up. With that, the ongoing trends could carry on unless there is a major change in risk sentiment.

By Kate Curtis from Trader’s Way

367

AUDUSD broke past a resistance area on its 1-hour time frame and rallied to a high of .8250 before retreating. Price is now retracing to the 50% Fibonacci level, which lines up with the broken resistance level at the .8150 minor psychological support.

Stochastic is moving up, indicating a buildup in buying pressure which might push price back up to the previous highs. Stronger bullish momentum could lead to a break past .8250 and a move towards the .8300 levels and beyond.

Earlier today, China reported its trade balance, which came in line with expectations and provided support for the Australian dollar. There are no other event risks from Australia today while the US has only a few medium-tier reports on tap.

Last Friday, NFP data from the US came in stronger than expected but revealed weak spots in the participation rate and wage growth. This suggests that the Fed might hold off any tightening moves until these components show consistent improvements.

Going long at .8150 with a stop below the 61.8% Fib or the .8100 handle and a target of .8250 could yield a good return on risk for a day trade. Aiming higher while trailing the stop could maximize profits while reducing risk at the same time.

By Kate Curtis from Trader’s Way

368

NZDJPY has shown increased downside momentum, as price broke below the bottom of the ascending triangle on its 4-hour time frame. The chart pattern is roughly 600 pips in height, suggesting that the resulting breakdown could be of the same size.

If the selloff carries on, price could head to the next support zone around the 90.00 major psychological mark and further on to the 88.00 handle. A pullback to the broken triangle support could still be possible if traders book profits off key support levels.

Stochastic is already deep in the oversold area, suggesting that a bounce is set to take place sooner or later. Shorting at market with a stop back above the triangle support could work for a breakout setup while waiting for a pullback to the 92.00 levels would be a more conservative entry.

Earlier today, reports of falling copper prices led to massive declines for the commodity currencies, particularly the Australian dollar. This carried over to the New Zealand dollar too, as the country is also heavily dependent on its commodity export industry.

There are no other event risks for this breakout trade for the rest of the day, as price action could be driven by risk sentiment. So far, the commodity price tumble is keeping risk appetite in check, which might mean more losses for the higher-yielding currencies and more gains for the lower-yielding Japanese yen.

US retail sales and import prices data are up for release later on and this might indirectly affect NZDJPY price action based on how it impacts overall market sentiment.

By Kate Curtis from Trader’s Way

369

NZDJPY recently broke below the bottom of the descending triangle pattern on its 4-hour time frame and is showing signs of a pullback. Price could retreat until the Fibonacci retracement levels which are close to the broken triangle support.

In particular, the 61.8% Fibonacci retracement level lines up with the former support zone near the 92.00 major psychological resistance. Stochastic has just reached the oversold area and is starting to move north, indicating a pickup in buying pressure.

If bulls are strong enough, they could trigger a test of the 92.00 major psychological resistance before the pair resumes its drop. From there, NZDJPY could test the recent lows at the 90.00 handle and perhaps go for new ones.

However, a strong return in buying momentum could lead to a test of the triangle resistance at the 94.00 major psychological level. Even stronger bullish pressure could turn to an upside break and further gains for NZDJPY.

Earlier today, Australia reported a stronger than expected jobs figure and led to a bounce for the New Zealand dollar. After all, positive developments in the Australian economy could also be good for New Zealand due to the country’s trade ties and proximity.

There are no other event risks for this trade setup today, suggesting that risk sentiment might play a key role in directing price action. Risk aversion and further commodity price declines could mean more losses for the pair and a shallow retracement, possibly until the 38.2% Fibonacci level.

As for Japan, there are also no top-tier reports lined up for today and tomorrow, also indicating that sentiment will mostly be responsible for any large price moves. Unless there are any changes though, the downtrend could carry on or consolidation could be seen.

By Kate Curtis from Trader’s Way

370

NZDUSD is testing the top of the range on its 4-hour forex chart, indicating that selling pressure might return sooner or later. Price is finding resistance at the .7850 minor psychological level and might be headed for the bottom of the range at the .7650 minor psychological level.

Stochastic is moving up though, suggesting that an upside break is possible. If so, the resulting rally might last by at least 200 pips, which is the same height as the chart pattern. This could lead to a move until the .8050 minor psychological level.

The US dollar is under heavy selling pressure for the time being, as data from the US economy has failed to impress. Yesterday’s set showed mixed results, with weaker than expected initial jobless claims and Philly Fed index. Meanwhile, the core PPI came in stronger than expected while the headline figure marked a 0.3% decline as expected.

The event risk for this range setup today is the US CPI release, which could also show a 0.3% decline for the headline figure and a mere 0.1% uptick for the core figure. Weak inflation readings could undermine the Fed’s tightening bias and lead to more declines for the US dollar, along with a pickup in risk sentiment.

There have been no major reports released from New Zealand so far and none are lined up for today. This suggests that NZDUSD price action could be mostly influenced by risk sentiment, particularly if there are any major announcements in today’s Asian trading session.

Bear in mind that the Korean central bank recently slashed growth and inflation forecasts while the Indian central bank surprised with a rate cut. This sparked risk aversion in yesterday’s Asian session, although most higher-yielders were able to recover later on. The SNB’s announcement about removing the franc cap also led to large market moves.

By Kate Curtis from Trader’s Way

371

AUDJPY has been trading in a downtrend, as a descending trend line can be drawn to connect the pair’s recent highs. Price is currently testing the falling resistance level around the 97.00 major psychological resistance for now and stochastic is indicating a return in selling pressure.

If so, price could fall back to its recent lows around the 94.00 major psychological support and perhaps go for new ones. However, the pair is moving very close to the trend line and may be due for an upside break if buyers are strong enough. If that happens, the pair could go for the next resistance level at the 98.00 handle or all the way up past the 100.00 mark.

Australia released stronger than expected jobs data last week, which explains why the Australian dollar is able to stay afloat even when risk aversion has extended its stay in the financial markets. The event risks for this trade this week include the release of top-tier Chinese data, such as the GDP and retail sales on Tuesday.

China’s GDP is slated to ease from 7.3% to 7.2% in Q4, which might prompt more talks of a slowdown in the world’s second largest economy and consequently the global economy. In that case, the Australian dollar could suffer heavier selling pressure, especially if the actual figure comes in short of expectations. After all, a bulk of Australia’s commodity exports are shipped to China and weaker demand could mean lower revenues for the Land Down Under.

On Wednesday, the Bank of Japan is set to announce its monetary policy decision but might be likely to hold off any major changes for now. Data from Japan appears to have stabilized, although the central bank might want to ramp up its money supply to counteract the effect of weak inflationary pressures on the Japanese economy.

By Kate Curtis from Trader’s Way

372

Last week’s SNB decision to remove the franc peg resulted to a massive rally for the Swiss currency and a 2000-pip selloff for EURCHF. According to SNB Chairman Thomas Jordan, this decision was made in anticipation of actual quantitative easing from the ECB this week.

With that, EURCHF could be under heavier selling pressure if traders continue to price in expectations of a massive bond-buying program from the ECB. Recall that the central bank has already announced stimulus a couple of times last year but might need to ramp up their easing efforts in order to ward off deflation.

In that case, shorting EURCHF below parity could work for a long-term position trade with a wide stop above the 1.0500 major psychological level. After all, the final CPI readings from the region reflected how the recent slide in oil prices has weighed on inflationary pressures. Aiming for .9500 or lower could yield at least a 1:1 return on risk.

Alternatively, the lack of action from the ECB could spark a large profit-taking move for this pair. A rally past the 1.0500 handle could lead to gains until 1.1000 or back to the 1.2000 levels, as traders ease off their long franc positions. However, the path of least resistance remains to the downside as the ECB has hinted that it is open to further easing if necessary.

Stochastic is pointing down, also confirming the potential for another sharp downside move. Bear in mind though that this pair can get volatile and may be prone to quick price swings before determining a clearer direction. Wide stops are recommended and it might be prudent to lock in profits along the way.

By Kate Curtis from Trader’s Way

373

EURNZD has been trading in a downtrend and is currently testing the descending trend line on its 4-hour forex chart. The falling resistance level might hold for now, as stochastic is indicating overbought conditions and is showing a bearish divergence.

As you can see, price made lower highs while the indicator made higher highs, confirming that bearish momentum is building up. In addition, the 61.8% Fibonacci retracement level appears to be holding as resistance since it lines up with the 1.5100 major psychological mark.

If the selloff resumes at this point, price could head back to its previous lows around the 1.4800 major psychological support or perhaps create new ones if selling pressure is strong enough. A break above the trend line and the 1.5100 handle, however, might indicate that a reversal is in the cards.

Earlier today, New Zealand reported a weaker than expected quarterly CPI, which explains the sharp selloff for the Kiwi. However, anticipation for an ECB quantitative easing announcement later on this week could keep the euro’s gains in check and force EURNZD to resume its drop.

There are no major event risks for both economies in today’s trading sessions, as there are no top-tier reports lined up from the euro zone and New Zealand. Market sentiment might cause a few moves though, as the BOE minutes and the BOC rate statement might usher in risk aversion.

For now, it appears that the path of least resistance for this pair is still to the downside, as the euro zone is in a fundamentally weaker state compared to New Zealand. Dairy prices appear to have bottomed out, as the latest auction indicated a 1.0% gain in prices, following the previous 3.6% increase.

[I]By Kate Curtis from Trader’s Way[/I]

374

AUDUSD has been moving sideways on its short-term time frames, as price found support around the .8100 major psychological mark and resistance at the .8250 minor psychological level. The pair is currently testing support for now and may be due for a bounce back to the top of the range.

However, AUDUSD also looks prime for a breakdown, as risk aversion has been present in the markets recently. Recall that the BOC just announced a surprise interest rate cut in order to weather the fall in oil prices and its negative impact on the Canadian economy, putting traders on their toes for potential easing moves from other central banks.

Data from the Australian economy has been relatively strong though, as their latest jobs report came in better than expected. Apart from that, economic figures from China, Australia’s largest trade partner, have also shown improvements.

There are no event risks for this forex range setup today, as there are no major reports lined up from both Australia and the U.S. The ECB interest rates statement might revive risk aversion and trigger a downside break, especially if the central bank announces a large quantitative easing program.

Stochastic just made its way out of the oversold area, indicating that bears are still taking a break and that support might hold for now. A move higher could lead to a test of .8250 resistance or at least a climb until the middle of the range at the .8175 area.

The path of least resistance is to the downside though, as uncertainty in the financial markets led to stronger demand for safe-havens like the dollar and weaker demand for the higher-yielding Australian dollar. A downside break could lead to around 150 pips in losses, which is the same size as the range pattern.

By Kate Curtis from Trader’s Way

375

USDJPY is moving inside a descending triangle pattern on its 4-hour time frame, as price made lower highs and found support at the 116.00 major psychological level. The pair is currently testing the triangle resistance for now and may be due for a move lower, as stochastic is almost in the overbought area.

If selling pressure returns, USDJPY could head back to the bottom the triangle and test support at the 116.00 mark once more. However, sustained buying momentum could lead to an upside break past the triangle resistance around the 118.50 minor psychological level at the moment.

A break in either direction could last by as much as 500 pips, which is the same height as the chart pattern. An upside break could take price up to the previous highs around 121.00 or higher to 123.00 eventually. On the other hand, a downside break could mean a move until the 111.00 major psychological handle.

There have been no major reports released from both Japan and the US this week, as these currencies traded mostly on risk sentiment and stayed in range. The BOJ interest rate decision proved to be a non-event, as policymakers refrained from taking action.

Next week could have more catalysts, with Japanese CPI and the FOMC statement on tap. The Fed is widely expected to maintain its cautious stance but highlight the consistent improvements in the US economy. Meanwhile, weaker CPI figures are eyed for Japan, thanks to the impact of falling oil prices.

The path of least resistance seems to be to the upside for now, as the US economy is in a better state than Japan. However, risk aversion appears to be favoring the Japanese yen recently since it has more room to rally.

By Kate Curtis from Trader’s Way

376

USDJPY’s short-term climb might soon be reversed, as price formed a double top pattern on its 1-hour time frame. The pair made a couple of failed attempts to break past the 118.75 area and found support at the 117.50 minor psychological level, which is the neckline of the formation.

Price is currently testing the neckline and may be due for a downside break, possibly until the next support area at the 116.00 major psychological level. The chart pattern is approximately 125 pips in height, which suggests that the resulting breakdown could be of the same size.

If the neckline holds as support though, price could make its way back up to the previous highs around 118.75 and create another top. This would form a triple top pattern, which is still a valid reversal signal. However, this could also be a sign that the pair might keep moving sideways inside a range.

Stochastic is moving up, indicating that buyers are in control and that the neckline support might still hold for now. Event risks for this USDJPY setup include the FOMC statement mid-week, which might indicate that the Fed is still open to tightening sometime this year.

On the other hand, a change in Fed rhetoric might also be possible since most major central banks are shifting to a dovish stance. Just recently, the SNB announced another cut in deposit rates while removing its franc peg while the Bank of Canada surprised with an interest rate cut. Last week, the ECB decided to announce a massive quantitative easing program while central banks from emerging markets also eased monetary policy.

If the Fed stays hawkish, USDJPY could bounce back to the previous highs and perhaps make an upside break. If the Fed sounds a little downbeat, a neckline break is possible and a move to 116.00 might take place.

Other event risks for this setup include the release of Japan’s CPI readings and industrial production data at the end of the week. Strong figures could lead to more yen demand as it would support the BOJ’s decision to keep monetary policy unchanged for now.

By Kate Curtis from Trader’s Way

377

USDJPY didn’t complete its recent double top pattern and instead bounced off support around the 117.25 level. Price is now on its way to test the top of the range around the 118.25 mark and may be due south if it holds as resistance.

However, it looks like sellers have already jumped in early, as price is undergoing selling pressure. Stochastic is making its way down, indicating that bears are in control and that a move back to the support area is underway. If you are bearish on this pair, it’s not too late to hop in a short trade and aim for the bottom of the range. If you are bullish though, it would be better to wait for a test of range support before going long.

The main event risk for this trade setup is the FOMC decision tomorrow, which might lead to dollar weakness if the Fed sounds more cautious. In their previous policy statement, they retained the “considerable time” wording in discussing how long rates might stay low even after easing has ended. They did add that they are being patient in considering policy normalization, which has been interpreted as a slightly hawkish signal by most market participants.

Any change in rhetoric might lead to directional moves for the dollar this week, with a more hawkish tone likely to spur strength. Inflation has still been weakening though while consumer spending has surprised to the downside, which might lead the Fed to stick to its usual spiel.

As for the yen, the slew of Japanese data on Friday might also lead to strong moves, as inflation is slated to weaken further. In their latest policy statement, the BOJ mentioned that further easing efforts aren’t necessary for now. Apart from that, the yen is also being supported by risk aversion lately.

By Kate Curtis from Trader’s Way

378

AUDUSD has previously made a strong break below support at the .8100 major psychological level and dipped below .7900 at the start of this trading week. Price appears to be making a pullback to the area of interest, which lines up with the 50% Fibonacci retracement level and might hold as resistance.

Stochastic is still heading north, which means that Aussie bulls are in control of price action for now. Buying momentum could take price up to the broken support zone and perhaps until the 61.8% Fibonacci retracement level near .8125. This could be the line in the sand for any short-term rallies, as an upside break could mean that a reversal is taking place.

Earlier today, Australia reported a 0.2% quarterly CPI figure, slightly lower than the estimated 0.3% reading and the previous 0.5% uptick. Components of the report indicated that the drop in oil prices was mostly responsible for the weak inflation reading, along with lower commodity price levels.

This leaves the upcoming FOMC statement as the main event risk for this retracement setup, as the Fed is likely to drop more hints on their monetary policy bias. In the minutes of their previous meeting, the Fed indicated that they are unlikely to hike interest rates before April this year but acknowledged the strength in the domestic economy.

The Fed is widely expected to retain this same cautious tone in this week’s announcement, possibly citing the risks of low inflation while assuring that the economy is still on track to recovery. Market watchers are waiting to see if the Fed will drop the “considerable time” phrase in discussing how long interest rates might stay low after easing has ended while reiterating that they “can be patient” in considering policy normalization.

By Kate Curtis from Trader’s Way

379

EURNZD’s selloff might soon be over, as price formed an inverse head and shoulders pattern on its 4-hour forex chart. Price is currently testing the neckline around the 1.5400 major psychological resistance and may make an upside break.

If that happens, the potential uptrend would be confirmed and the pair could climb by as much as 600 pips, which is the same height as the chart pattern. This could take EURNZD up to the 1.6000 major psychological resistance.

Stochastic is already indicating overbought conditions though, which suggests that euro bears could take control of price action soon. In this case, EURNZD could make another test of support at the 1.5100 handle, which appears to be an area of interest. Increased selling pressure could mean a move back to the previous lows at 1.4800.

Recall that the ECB just announced a large quantitative easing program last week, as they plan on purchasing 60 billion EUR worth of government bonds and private bonds each month. In addition, the political shift in Greece could mean more uncertainty in their debt situation, which could lend more downside for the shared currency.

As for New Zealand, the RBNZ’s decision to drop its hawkish bias is currently weighing on the commodity currency. Governor Wheeler reiterated that the currency level is unjustified and unsustainable, adding that he’s expecting to see further significant depreciation.

There are no other event risks for this trade today, as central bank policy biases could dictate longer-term price action. In terms of fundamentals, the euro zone is faring far worse compared to New Zealand, as the latter is still seeing strong domestic demand and improved hiring prospects. With that, the path of least resistance might still be to the downside.

By Kate Curtis from Trader’s Way

380

USDJPY has been trading inside a descending triangle pattern on its 4-hour time frame, with price hovering around the resistance. Stochastic is still pointing up, which means that buying pressure is present and that an upside break is possible.

If that happens, USDJPY could climb by around 500 pips, which is the same height as the chart pattern. If the resistance holds, the pair could move back to the bottom of the formation at the 116.00 major psychological support.

The path of least resistance is to the upside, with the FOMC expressing their bias to tighten policy sometime this year. This has been positive for the US dollar since the Fed seems to be the only major central bank taking a hawkish bias. In contrast, the BOJ has decided to keep policy unchanged but is leaving the door open for further easing if necessary.

Recent data from Japan has been weaker than expected, with spending and inflation figures falling short of forecasts. In addition, the impact of the sales tax hike is still weighing on spending and production, and it doesn’t help that falling wage inflation is making it difficult for consumers to cope with the higher cost of living.

There are no catalysts for a breakout trade for the rest of the week, but the upcoming trading week has some top-tier reports lined up. This includes the release of the US non-farm payrolls report, which might indicate another strong gain in hiring. If so, USDJPY could surge past the triangle resistance around 118.00-118.50 and rally until the previous year highs around 121.00.

On the other hand, bleak figures from the US could force the currency to return its recent gains, with the pair favoring the Japanese yen if risk aversion kicks in.

By Kate Curtis from Trader’s Way

381

EURJPY has been trading sideways on its 1-hour time frame, creating a range between support at 132.50 and resistance at 134.00. Price has just bounced off support at the bottom of the range and may be due for a test of the resistance once more.

If the top of the range holds, price could head back to the bottom once more and continue moving sideways. Stochastic is already indicating overbought conditions, although it hasn’t crossed down yet and reflected a pickup in selling pressure. The pair could still have enough upside until the 134.00 mark before heading back south.

However, an upside break could still be possible if risk sentiment picks up. This could lead to a strong break past 134.00, which might signify further gains for EURJPY. Take note that the rectangle pattern is roughly 150 pips in height, which means that the resulting rally could be of the same size.

Event risks for this range trade include the release of Spain’s employment change report and manufacturing PMI. Italy is also set to print its manufacturing PMI today before the euro zone region releases its final PMI. Strong data could lead to more gains for the euro and a potential upside break while weak data could spark an early selloff.

There are no event risks lined up from Japan today, although last week’s set of reports suggests that the economic picture is worsening in the country. This could keep risk-taking in check and continue to favor the lower-yielding Japanese yen unless BOJ officials start entertaining the idea of further easing.

With that, the path of least resistance is still to the downside, as the euro zone economy is faring much worse than Japan. Risk aversion could also keep the Japanese yen supported for the time being.

By Kate Curtis from Trader’s Way

382

EURNZD is forming a rising channel on its 1-hour time frame but seems prime for a countertrend play, as price is testing the range resistance. The pair has consolidated around the 1.5550-1.5600 psychological levels and may be due south if euro bears take over price action.

A bearish divergence can be seen, as stochastic made lower highs while price made higher highs. This could be indicative of a buildup in selling pressure, which could eventually take EURNZD down to the bottom of the channel near the 1.5200 major psychological support.

Stochastic is moving out of the oversold region for now, suggesting that another test of channel resistance is possible. Shorting at market with a stop above the channel around 1.5800 and a target of 1.5200 could yield a good return on risk for a swing trade. Bear in mind that this pair tends to get volatile and moves by more than 300 pips a day so it makes sense to have a wide stop.

In terms of fundamentals, the euro zone is in a weaker state compared to New Zealand, although their central banks are both in a dovish stance. The ECB just cut rates in a couple of instances last year and implemented a massive bond-buying program while the RBNZ dropped its hawkish bias and opened the door for a rate cut.

Waiting for further bearish momentum below the 1.5500 handle could be a prudent strategy, as this could confirm that euro bears have enough energy for a southbound move. Event risks for this trade today include the New Zealand dairy auction and the release of the employment figures in the next Asian trading session.

New Zealand is expecting to see a 0.8% uptick in hiring for Q4 2014, which might be enough to bring the jobless rate down from 5.4% to 5.3%. Stronger than expected data could reassure traders that the economy could stay resilient even if price pressures keep falling, hence supporting the Kiwi.

By Kate Curtis from Trader’s Way

383

Yesterday’s surge in risk appetite drew Aussie bulls back and triggered a sharp correction for AUDUSD. Price is testing the falling trend line on its 1-hour time frame, which lines up with an area of interest and the 38.2% Fibonacci retracement level.

Stochastic is still pointing up, hinting that further gains are possible. If so, an upside break from the trend line could take place and spark an AUDUSD rally. On the other hand, if the trend line continues to hold as resistance, price could test its recent lows near the .7600 major psychological support.

A higher pullback might last until the .8000 major psychological resistance, which is a key area of interest on longer-term time frames. This could hold as a ceiling for any potential gains, with an upside break likely to signify that the downtrend is over.

The path of least resistance is to the downside since the RBA just cut interest rates earlier this week. The central bank cited a weak growth outlook, a lower inflation forecast, and a potentially higher jobless rate as their reasons for lowering rates. Meanwhile, the FOMC indicated in their statement last week that they are foreseeing more improvements in the US economy and that they are considering tightening monetary policy.

The rebound in commodity prices is also shoring up risk appetite and higher-yielding currencies for the time being, as traders also took the opportunity to book profits off their recent long dollar trades. Event risks for this trade include the NFP release on Friday this week, which might indicate a slower gain in hiring.

Stronger than expected jobs data could renew demand for the US dollar, as this would confirm that the economy is doing well and that it can survive even with higher interest rates later on. On the other hand, a disappointing result could lead to more dollar weakness if traders speculate that this could delay Fed tightening.

By Kate Curtis from Trader’s Way