AUD/NZD Breaks a Key Multi-Month Support; How to Trade it?

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AUD/NZD - How to Trade a Key Bearish Breakout

AUD/NZD has been trading down in November but was holding at a mutli-month support around 1.0920 in the past week.

AUD/NZD Daily Chart 11/26
audnzd daily chart 11/26

(click to enlarge)

Breakout: Today (11/26), AUD/NZD is falling sharply, breaking below the 1.0920 support as well as the 200-day SMA and the 1.09 psychological level. The daily RSI dipped below 30, showing bearish momentum, though in the near-term, it can signal oversold condition.

Bearish Momentum; Oversold; Pullback: Now, if the market finds AUD/NZD oversold in the near-term, we might get a bounce, but we will have some key support levels that can turn into resistance. Looking at the AUD/USD chart, there are some previous support pivots around 1.0920. We should expect sellers starting in the 1.09-1.0920 area. If the pullback becomes sharper, we should expect sellers in the 1.10 area. Now, if price breaks above 1.11, we might no longer have a bearish outlook, especially if the daily RSI returns above 60.

Target: The current breakout opens up the 1.0640-1.0650 area, which is a common support area between from April through July. This was the support that acted like a spring board AUD/NZD’s surge to 1.13. Before that we should expect some pullback, because the daily chart is oversold as mentioned before. However, if the pullback goes above 1.11, we should no longer anticipate a bearish outlook towards 1.0650.

Fade the Next Rally: One way to play the pullback is dropping to the 4H chart and looking to sell on a rally.

AUD/NZD 4H Chart 11/26
audnzd 4h chart 11/27
(click to enlarge)

Trading a Pullback: 
The 4H chart shows a market that is bearish based on price action holding below a trendline and the 200-, 100-, and 50-period SMAs, as well as the RSI tagging 30 but holding below 60.

Now, the RSI is showing oversold condition. If price pulls back up, we should monitor the cluster of resistance that will be the falling trendline, the 50-period SMA, and a previous support in the 1.0925-1.0950 area. It would also be preferable if the 4H RSI comes up into the 50-60 area, then stalls and comes down. We should also wait for price to first stall and show bearish intent before considering the bearish continuation towards the 1.0650 area.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.