Recently, AUD/NZD made a key technical development when it fell below 1.09. The daily chart shows that this cleared below 1) a multi-month consolidation support, and 2) the last of the 200- ,100-, and 50-day SMAs, removing the bullish bias established in July through August.
Approaching Rising Support: As price breaks below 1.08 this week, we can see that AUD/NZD is now approaching a rising trendline that goes back to the 2014-low near 1.05, made at the end of January. With the daily RSI breaking around 30, the market might be a bit oversold, especially if see some further decline, and a bullish divergence between price and the RSI as it hangs around 30.
Rationale for Considering a Buy: If these technical condition develops, traders might consider buying because AUD/NZD has been neutral and slightly bullish in 2014, which makes an oversold condition at support a valid reason to consider buying.
Assessing a Trade Plan to Buy:
Looking at the 4H chart, the pair looks persistently bearish and without the guidance of the daily chart, traders might be discouraged to “picking a bottom”. However, next time the RSI dips below 30 in the 4H chart and the daily chart, with price below 1.0750, but above 1.07, there could be more reasons to buy.
So, let’s examine a trade plan to enter at 1.0735. First of all, a break below 1.07 would be a clear indication that the market does not respect the rising support drawn on the daily chart. At that point, our bullish outlook will have to be limited. So, let’s say we put a stop at 1.0675. this would yield 60 pips of risk. We should not be too aggressive on the bullish outlook neither. The first target could be around 1.09, while a more aggressive target could be around the 1.10 psychological level, with 1.1050-1.1060 as the maximum bullish outlook.
Using the conservative target of 1.09, we would have a potential reward of 165 pips. This yields a tad better than a 3:1 reward to risk, making this a viable trade plan to consider.
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