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AUDNZD: Seeking Protection From European Event Risk

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At the start of this week, I mentioned how the AUDNZD bulls had reclaimed 1.0765. This area had served as resistance for nearly a year before last month’s bullish break, but ten days ago buyers lost their grip on the new support level.

I was on Twitter last week stating how I believed the recent dip to be a bear trap. In other words, the price action between the 18th and 21st of April appeared to be a false break. Monday’s close back above 1.0765 validated my suspicion.

Monday’s close also suggested a move higher was in the cards. The very next day, buyers closed the Australian dollar cross above yet another significant level at 1.0832. Since that time the pair has broken above channel resistance on a 4-hour closing basis.

From here I’ll be interested in adding to my long position but not until next week. I want to see a daily and weekly close above the 1.0860 area as further confirmation that the consolidation period has ended.

The consolidation I speak of followed a 690 pip rally. And although the lower boundary experienced a false break last week, the formation has the look of a bull flag. This fits with my longer term objective for the pair at 1.1300.

Should buyers manage a close above 1.0860 today, I will look to add to my long position next week. The next key resistance comes in at 1.0920. This area has acted as a pivot for the pair since late 2013.

Above that, we have the 1.1060/70 area. This is the location of the November 2015 swing high and also attracted a bid between March 30th and April 27th of last year. Of course, the current 2017 high at 1.1018 will also likely attract sellers on the way up.

I mentioned it on Monday, but it’s worth restating. Apart from the favorable risk to reward ratio, the AUDNZD is relatively insulated from shocks that could arise as a result of the elections in France.

With a run-off scheduled for May 7th, pairs with Euro or U.S. dollar exposure could become highly volatile in the days leading up to the event. The same goes for the risk-sensitive Japanese yen.

The AUDNZD is unique in that it provides some level of protection from European event risk. For that reason along with the favorable technicals you see below, I’ll favor the pair so long as buyers continue to get the job done.

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AUDNZD bull flag

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3 comments
michael walker says

I may not take or win as many trades as others but I have learnt over time to only take trades that are most likely to reach my objective and rarely use trailing stops unless the price is pasted my objective.It has been painful at times but forced me to make a better analysis before entering the trade.I find I need an engulfing candle or pinbar.A daily close assumes the resistance or pivot is strong enough.

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    Justin Bennett says

    That’s great to hear, Michael. Thanks for sharing.

    Reply
Mimi says

I actually sold this pair based on weak/strong analysis and up 144 p at the time of writing this comment.

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