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Day one: potential AUD/NZD trade

Potential strategy: sell one mini contract of AUD/NZD at 1.0830, with a potential stop loss at 1.0930, targeting 1.0650.

After a 15.4% decline from the March highs to the December low, AUD/NZD has spent the last few weeks consolidating. However, there are signs the downtrend could re-assert itself, with stochastics on the daily chart starting to fall again.

The MACD on the daily chart is below zero and is flattening out and I will look to add another mini contract when I see the MACD (blue line) break below the signal (red line) line. Using the MACD as an indicator can be tough, with false signals often highlighted. However, when there is strong downtrend the signal can be much more reliable. As it stands, all moving averages (up to the five-day moving average) are headed lower, showing the short-, medium- and longer-term trends are lower.

I have suggested placing stops above the top of the recent range at 1.0930, while a break of the December 18 low of 1.0738 would be positive for the trade.

I continue to like the NZD in 2014, and while the currency is pricing in fairly aggressive rate hikes over the next twelve months, the market will be keen to stay long the Kiwi dollar on signs of ever increasing policy divergence at a central bank level.

The key event risk for the pair comes in the shape of Australian retail sales (November) on Thursday, while the trade balance and building approvals could also influence the AUD. Retail sales are expected to increase 0.4% and a weak number would clearly push the trade in the right direction given this data point has been fairly upbeat of late.

The trade is a momentum based strategy, however I will add to the trade when conditions turn more bearish.

*Price at the time of writing: 1.0825

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