AUD/NZD’s rallies have come to a halt as price found resistance at the top of the rising channel on its 4-hour time frame, creating a potential countertrend forex setup. At the moment, price is stalling at the 1.0950 minor psychological level after hitting a ceiling at the 1.1000 major psychological mark.
Stochastic is moving out of the oversold zone though, indicating that buying momentum is in play. In this case, price could make a move back to the top of the trend channel and make a forex setup to short at 1.1000 with a tight stop loss.
AUD/NZD Forex Setup
However, if price simply breaks below the 1.0950 mark and shows signs of heading south, price could move all the way down to the mid-channel area of interest for the week. Bear in mind that the RBA interest rate decision is scheduled and that New Zealand will release its jobs report later on, providing potential volatility for this forex setup.
Shorting at market with a stop above the 1.1000 mark could yield a 1:1 return on risk if one aims for the middle of the channel near the 1.0850 minor psychological support. Aiming for the bottom of the channel at the 1.0650 minor psychological level could improve the reward ratio but it would be prudent to adjust the stop to entry once price tests 1.0850.
A breakout could still be possible though, especially if the New Zealand jobs data turns out much weaker than expected. Earlier this week, Australia’s retail sales and trade balance data came in better than expected. Prior to that, official and HSBC manufacturing PMIs reflected a small rebound in activity for China, which is Australia’s largest trade partner.
An upside breakout from the 1.1050 area could mean that further gains are in the cards for this pair. This could take place if stochastic keeps climbing and reflecting a pickup in buying momentum.
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