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December 5th, 2013 at 5:00 am

AUD-NZD on Watch for Rebound.

Another currency pair showing a long and impressive trend is the AUD-NZD. The commodity currencies are not moving in accord, and Aussie has been falling versus the Kiwi for over two years now. During this time, the exchange rate dropped by over 2600 pips, which is a huge swing for this pair, one of the largest in the last 20+years. Recently, the price made another bearish breakout from consolidation, but now chances for stronger support are greater. The first test real test is happening now, at the 1.1000 level.

AUD-NZD W


This is a psychologically important region on the chart, which will receive plenty of attention from long-term traders. The price itself is developing a divergence with the MACD, often a solid sign of a bounce on this time scale. Admittedly, we would need to see a decisive bullish candlestick reversal pattern, which could easily take 2-3 weeks to develop. For now, the weekly chart shows an overextended downtrend, but no real buy signal. The daily chart might be better to spot the rebound, if it happens.
AUD-NZD D

The key once again is the general 1.1000 area. Because we are talking about long-term swings, “area” is much better term than “level”. The price can easily dip below the threshold by 40-50 pips, yet the general support would still be intact. More important is what happens in this region, like development of important candlestick reversal pattern during next two days. That might just be the hint that the market is ready to bounce by 300-400 pips.

If the downtrend continues, the AUD-NZD could fall to 1.05-1.06, where it had found bottom on several occasions years ago. Some would argue that region is technically better to offer strong support than the psychological barrier of 1.10. True, but one has to remember that in currencies extremes so old are also nothing more than psychological levels. Unlike stocks, very few people hold currencies for several years, so there will be very small number (if any at all) of market participants buying AUD-NZD at 1.05-1.06 because they can finally get out of losing trades and break even. All of it will be psychological and might just happen at 1.10 first.

Mike K.

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