From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Two months ago, we laid out plans to position ourselves for a push higher in the USD.
Of the four trade setups we identified–EUR/USD, GBP/USD, AUD/USD, and NZD/USD–the Aussie was the only one that worked.
The fact that many of those trades failed or, more specifically, were never even triggered at all, is information!
Fast forward to today and we’re looking at a failed breakout in the US Dollar Index that’s been confirmed by strong downside follow-through since last week. Now, it’s time to flip the book long on some of these trades to express our thesis of further USD weakness, at least over the near term.
One trade setup that stands out due to its asymmetric risk-reward profile at current levels is the NZD/USD.
Let’s take a look at the Kiwi…
Here’s the daily chart of the NZD/USD cross:
Remember last week, when we discussed the whipsaws and failed moves we were seeing all over the place. Well, we can add this one to that list.
It’s impossible to ignore the failed breakdown and sharp move higher in NZD/USD in recent sessions. Not to mention the bullish momentum divergence that accompanied it.
Bottom line, there’s a lot to like about this chart right now, as all these characteristics are suggesting a continued rally for the Kiwi.
And it’s also a great trading opportunity, as our risk is very well-defined and the cross is offering a risk/reward skewed heavily in favor of the bulls. NZD/USD is checking all our favorite boxes right now.
But we can’t be long the New Zealand Dollar if we’re below the June-July lows around 0.69. It’s that simple.
On the other hand, as long as we’re above that critical support level we want to be buyers, with a target near the May highs of 0.73 on a 1-3 month timeframe.
But the NZD/USD is just one of several failed moves we’ve seen from risk assets lately–not just in the currency market but across all asset classes.
Remember, the markets are still a mess, so it wouldn’t come as much of a surprise if the NZD/USD continued to chop around in its current range.
That’s why it’s as important as ever to respect our risk levels and to keep our stops tight.
As long as we focus on managing our losses, our profits will take care of themselves over time.
Stay tuned for an update on some other USD crosses that we can use to express our tactical bearish outlook on the Dollar later this week!
Thanks for reading. As always, let us know what you think.
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