Aussie Dollar Weakness

The Australian dollar has really struggled against the New Zealand dollar in recent months. Back in January I posted about the long-term weakness of this particular pair, and pointed out that it was in a strong downward trend on pretty much every single time frame, including the monthly, weekly, daily and 4-hour time frame.

Well nothing much has changed because if you look at exactly the same time frames on a single screen, it is clear that this pair is still in a very strong downward trend.

The price is actually lower now than it was in my previous post, which indicates that the long-term downward trend is still in place, and if you look at the price in comparison to the 20, 50, 100 and 200-day moving averages, you can see that it is still below all of these indicators on the monthly, weekly, daily and 4-hour chart:

Future Price Direction

The AUD/NZD is still not really showing any signs of strength or recovery, and has actually just started to turn downwards once again on the lower time frames, ie the daily and 4-hour chart, which is why I thought it was worth mentioning it in a new blog post.

At the time of writing, the price has moved back towards the EMA (20) on the daily chart, but has fallen back today, and has just crossed below the EMA (20) on the 4-hour chart.

Therefore the likelihood of a recovery in the short-term is looking less and less likely, and it is looking more likely that the price will continue falling.

It recently fell below 1.03 last week, and I think it could easily test this level once again, and possibly go a little lower before we see any potential recovery.

Long-Term Prediction

You would have to think that the long-term weakness in the AUD/NZD cannot continue forever. At some point the Aussie dollar should start to strengthen against the New Zealand dollar.

Looking at the monthly and weekly charts, it wouldn’t be at all surprising to see the price move back towards the 100 and 200-period moving averages at around 1.07-1.08 in the medium-term, and up to 1.11 looking further ahead.

However as I always say, these are just my own thoughts and opinions, and this is no way should be seen as professional trading or financial advice. You should always do your own research and make your own decisions when trading the forex markets.

Introduction

A lot of traders tend to focus on the British pound, the US dollar and the Japanese yen when trading the currency markets, but there are a few other pairs that have relatively low spreads, and are potentially very profitable to trade.

One such pair that often goes unnoticed by traders is the AUD/NZD pair, but it has been interesting to watch the price action of this particular pair in recent times because the New Zealand dollar continues to strengthen against the Australian dollar over time, and is not really showing any signs of reversing this trend.

Strong Downward Trend

One way of determining the current price trend is to add the 20, 50, 100 and 200-period exponential moving averages to your daily price chart, and see where the price trades in relation to these moving averages.

If the price is above all four of these moving averages, then it is in a strong upward trend, and if it is trading below all four of these moving averages, it is obviously in a strong downward trend.

Furthermore, if the price is also trading above or below these moving averages on multiple time frames, such as the weekly and monthly charts, for example, then you know that it is in an established long-term trend right now.

That’s precisely the case with the AUD/NZD pair because as you can see from the chart below, the price is trading below the 20, 50, 100 and 200-period exponential moving average on the monthly, weekly, daily and 4-hour charts:

Trading Opportunity

The question is; how you can actually capitalize on this long-term trend?

Well with such a strong trend in place, you might think that you can make money just by selling into any strength, and in many cases this may well be profitable.

However I would probably look for opportunities to go short on the daily time frame, and particularly around the 100 and 200-day moving averages because this is where the price is likely to run into some strong resistance.

Therefore any time there is a pin bar around these levels or divergence on one or more indicators, for instance, this would probably be a good time to take a short position.

Price Action

The AUD/NZD pair has fallen quite dramatically in recent weeks. After posting a yearly high of 1.1176 back in August, it has since fallen all the way down to 1.0620, which is equivalent to a fall of 556 pips.

Looking further back in time, the price has generally been trading in a fairly predictable sideways trading range, generally fluctuating between 1.13 and 1.03, so there is nothing unusual in these recent price movements.

However the key point I want to make in this article is that the price is now approaching a key support level that may well prevent the price from falling a lot further.

Support Level

Although there has been a lot of sideways movement, if you look at the weekly chart above, you can see that the price has been slowly trending upwards since 2015 (indicated by the rising trendline), and has always found support when it has come close to this trendline, bouncing off it on 5 separate occasions.

Future Price Direction

Based on this key support level, you would have to say that the price is highly likely to reverse and move higher as it gets closer to this trendline.

Therefore as the trendline is currently around the 1.0600 level, it may be worth watching for possible reversal signals on the daily chart to look for opportunities to go long, although as always, I am not recommending any trades or offering any advice. These are just my own thoughts and opinions.

Pin bars and divergence patterns on indicators such as the RSI, stochastics and MACD are examples of some very effective reversal signals that are worth looking out for on the daily time frame.

The bigger picture is always best viewed on the weekly time frame, but it always a good idea to zoom down to shorter time frames, such as the daily time frame in this instance, in order to spot the reversal signals earlier and get a better entry point.

Profit Target

If the price were to move higher, there is the potential for the price to move back up to the 100 and 200-day exponential moving averages on the daily chart, which are currently around the 1.0860 mark, 240 pips higher, particularly as the 200-week moving average is currently around the same level.

However there are still no guarantees of anything at this stage because trendlines don’t last forever and the longer they go on, the more likely they are to be broken.

This is why there is a need to look for definitive reversals around this level rather than blindly opening long positions at 1.0600 in the hope that the trend will resume.