NZDUSD has been moving inside a falling channel on its 1-hour time frame, reflecting a short-term forex trade downtrend. Price has just found resistance at the top of the channel and is moving to the bottom.
The channel support test might lead to a bounce for NZDUSD, as this lines up with the .8400 major psychological level. Stochastic is in the oversold zone, indicating that buyers could be in control of forex trade price action soon. In that case, a rally from .8400 could take NZDUSD back to the channel resistance near the .8460 levels.
Going long at .8400 with a tight stop and a target of .8460 could yield as much as a 2:1 return on risk for a short-term trade. Take note that this would be a countertrend forex trade setup though.
Forex Trade Scenarios
Event risks for this forex trade include the New Zealand dairy auction, as another decline in prices might lead to a steeper selloff for the Kiwi. On the other hand, a rebound could lead to gains for the pair as it would suggest that the sector is starting to recover.
If the dairy auction shows another sharp decline in milk prices though, speculations of weaker GDP growth could push the Kiwi below the support levels marked. This could lead to a break of the channel support and a longer term forex trade downtrend for NZDUSD.
As for the US dollar, expectations of a more hawkish Fed tone in the Jackson Hole symposium later this week could keep the currency supported. After all, the US economy has shown consistent improvements in the past months even as the Fed is winding down its stimulus program. Apart from that, risk sentiment is on the dollar’s side for now, as prevailing geopolitical tensions are keeping safe-havens supported.
Data due from the US economy that could affect this forex trade today are the headline and core CPI figures, along with a projected pickup in housing starts.
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