The Weekly Update: AUD and NZD Technical Setup

FX Trading Strategies

Theresa May’s party failed to garner enough sits to secure a majority. There has been negotiations between the Conservatives and the Democratic Unionist Party (DUP) but at the time of this writing no deal has been struck between the parties. Even if a minority government is formed it may be extremely fragile in the near future, time will tell.

The EU has been ramping the pressure on Theresa May, warning that if she insists on discussing a a UK trade deal and the divorce payment (EUR 10 billion) simultaneously it will stall the negotiations for one year, which may leave the UK with little time to begin its negotiations until 2019. The brexit negotiations are set to commence next week where a new government may be formed by then.

GBPAUD Weekly Chart

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The Weekly Update: AUD and NZD Technical Setup

GBPAUD Weekly Chart 11/06/17

GBPAUD Trading Strategy

We have noted the potential for reversed Head-And-Shoulders (H&S) on Friday and decided to wait for the weekly close. What we have also noted in our analysis is that the right-hand shoulder is currently supported by the 44 Moving Average (44MA, in blue) and 21MA (in black). We are not convinced GBPAUD strength may stem from a strong GBP.

We are aware the formation of a new government may be the trigger for a rally in GBP pairs and crosses but we are uncertain whether GBP will be a dominant factor in GBPAUD. What we may also note is the potential drawdown. The protective stop must be layered beneath 1.6700. We can attempt a tighter stop but it will come with a moderate risk. Should GBPAUD fail to gap lower we must decide whether we wish to tolerate the potential drawdown.

GBPNZD Weekly Chart

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The Weekly Update: AUD and NZD Technical Setup

GBPNZD Weekly Chart 11/06/17

GBPNZD Trading Strategy

Very similar to GBPAUD, GBPNZD is also painting a potential reversed H&S on the weekly chart. The potential gains are higher when compared to GBPAUD. The size of the protective stop is similar, perhaps tighter by several pips. Again, we are uncertain any corrective gains in the cross may result due to a strong GBP. It appears the anticipated rally may stem from weak commodity currencies.

There can be several triggers for weak commodity currencies. We will assume the trigger may be related to the upcoming Fed monetary policy (due on Wednesday) where a rate hike is expected. The other possibility may be the actions by the People’s Bank of China (PBOC) that have weakened the commodity currencies in the past, particularly a devaluation of the Yuan. However, predicting such actions is beyond our abilities.

EURNZD Weekly Chart

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The Weekly Update: AUD and NZD Technical Setup

EURNZD Weekly Chart 11/06/17

EURNZD Trading Strategy

The dip in EURNZD weekly chart is suggesting Euro Kiwi is also positioning itself for corrective gains, similar to GBPNZD. We would rather see a gap lower in EURNZD (preferably above 1.2425), which may suggest the gains are due to materialize this week rather than in the following week.

We have noted a potential long entry in EURAUD, however, it is entry we often dismiss due to the risk of another leg lower, which is why we are not presenting the chart. Based on technical analysis we find NZD to be more appropriate than the Australian Dollar (AUD) although it will greatly depends on the opening price when the Forex market opens.

We remind that by opting for any of the above potential entries negative interest will be incurred at the rollover and that we are fully aware of it. We will decide how we wish to proceed with the signals at the opening of the Forex market, we may wait several minutes as the spread for the above crosses is likely to widen for some time.

GBPNZD Trade Alert

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The Weekly Update: AUD and NZD Technical Setup

GBPNZD Weekly Chart II 11/06/17

GBPNZD long at market price (1.7653)
Take profit: 1.8190
Protective stop: 1.7395
Risk Ratio (RR): 1 : 2.2 (approx.)
Estimated duration: 25 days

Note: This is not a tight stop as it is a weekly entry. GBPAUD requires over 300 pips stop, which is why we prefer GBPNZD. The potential drawdown is a re-test of 1.7500. There may be some drawdown on the long trade but we are not layering a buy limit order in an event the drawdown will be minimal. We are aware the spread may still be wide for some traders.

GBPCAD Trade Alert

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The Weekly Update: AUD and NZD Technical Setup

GBPCAD Daily Chart 14/06/17

GBPCAD long at market price (1.6804)
Take profit: 1.7100
Protective stop: 1.6700
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 5 days

Note: This is daily entry, initial support is seen at 1.6785.

14/06/17 UPDATE: GBPCAD is trading at 1.6863 at the time of this writing, we are closing 20% of the long trade at market price.

14/06/17 UPDATE: GBPCAD is trading at 1.6897 at the time of this writing, we are closing the long trade at market price.

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The Weekly Update: AUD and NZD Technical Setup

GBPCAD Daily Chart 14/06/17

It was a tough decision but we decided to reduce our exposure ahead of the Fed monetary policy.

To further clarify, the technical entry is valid, nothing has changed. We must assume whether it does take place or not that GBPNZD will trigger the stop. The deviation we witnessed earlier was not considered when the trade (GBPCAD) was issued.

Although it is unlikely to repeat itself (at least today), in light of the status of GBPNZD we wanted the risk reduced. We could still find ourselves in a position where we will have to widen the stop. Such decisions are difficult to make but the risk must be controlled. We are focusing on the larger picture and not a particular trade.

14/06/17 UPDATE II: GBPNZD is trading at 1.7719 at the time of this writing, we are closing 10% of the long trade at market price.

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The Weekly Update: AUD and NZD Technical Setup

GBPNZD Weekly Chart 15/06/17

The partial closure is made to reduce the holding costs of the long trade due to the negative interest at the rollover (stop was shifted to 1.7360 prior to the Fed monetary policy).

14/06/17 UPDATE: GBPNZD is trading at 1.7526 at the time of this writing, we are closing 10% of the long trade at market price as a precaution. Based on the 4hr close there is a fair probability the price may re-test the daily low either prior or following the Fed monetary policy.

We will have to widen the stop but we will wait until we near the top of the hour to understand the required adjustment (stop was later shifted to 1.7360).

15/06/17 UPDATE: GBPNZD is trading at 1.7719 at the time of this writing, we are closing 10% of the long trade at market price.

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The Weekly Update: AUD and NZD Technical Setup

GBPNZD Weekly Chart 15/06/17

The partial closure is made to reduce the holding costs of the long trade due to the negative interest at the rollover.

22/06/17 UPDATE: GBPNZD entry is based on the weekly chart. As opposed to other entries there is a cluster of support levels in the chart. We initially layered the protective stop at the upper range of the cluster and then shifted the stop to lower range.

The price has tested the cluster on multiple occasions. Only a weekly close may provide further details on the strength of the support levels we have used as the entry is still valid. GBPNZD is a volatile cross that tends to trade between 150 – 200 pips per day.

Should we remain in the trade by the end of next week and no progress is made we may begin downsizing the position. In an event GBPAUD posts significant gains that are not reflected in GBPNZD we may also downsize the trade.

Should the price trade at current levels prior to the weekly close we may require to widen the stop to withstand the spread widening on Sunday. We would rather not be in such a position but we may have little choice.

Bearing in mind GBPUSD range (caused by rate hike expectations from the BOE, the recent Fed rate hike and the brexit negotiations) we are shifting the protective stop to 1.7330. This is the second time the stop has been adjusted, which was not done since our GBPUSD short trade prior to the UK referendum.

Regardless of this adjustment the stop will have to be temporarily widened prior to the weekly close should GBPNZD continue trading at current levels.

We are not deterred by losses and have no intention of becoming attached to GBPNZD. The entry is still valid at the time of this writing, we are simply adjusting the position to the current market conditions. Adjusting the stop was a tough decision but it had to be made.

28/06/17 UPDATE: GBPNZD is trading at 1.7782 at the time of this writing, we are closing 30% of the long trade at market price.

29/06/17 UPDATE: This is another tough decision we decide to make. The interest at the rollover for GBPNZD is too high for our liking, this trade can be kept open until August rather than 21 days.

We wmay ill focus on NZDUSD, which has a more tolerable interest at the rollover but it will not be today unless a significant price movement takes place. We may re-enter GBPNZD but once we are convinced the odds for a range-bound activity are low.

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The Weekly Update: AUD and NZD Technical Setup

GBPNZD Weekly Chart 29/06/17

GBPNZD is trading at 1.7794 at the time of this writing, we are closing 30% of the long trade at market price and shift the protective stop to the entry. We will exit the trade prior to the daily close, we are waiting to see whether steel tariffs will be introduced in today’s session.

29/06/17 UPDATE II: GBPNZD is trading at 1.7819 at the time of this writing, we are closing the remaining partial at market price.

The Weekly Update: AUD and NZD Technical Setup
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The Weekly Update: AUD and NZD Technical Setup

Last Updated on July 3, 2017