Yesterday I commented on the NZDUSD selloff that triggered when the pair closed below channel support that extends from the May low at 0.6675. The economic update released by the RBNZ early in today’s session gave rise to additional concern about the kiwi’s lofty prices, which helped the pair shed another 70 pips.
As you may well know, the Australian dollar and New Zealand dollar share a common bond. As such, the two currencies often move in tandem. And at a 92.2% positive correlation on a daily closing basis, that relationship is currently stronger than it’s been in quite some time.
This increase in correlation signals that the recent breakdown in the NZDUSD could soon spill over to its Aussie counterpart. In fact, over the weekend I mentioned the bearish engulfing pattern on AUDUSD that triggered this week’s 140 pip drop.
But even if the two currency pairs weren’t correlated, the price structure on the AUDUSD would still interest me. And while the more immediate trend line that extends from the May low at 0.7145 (second chart) is intriguing, there is a larger opportunity that’s been brewing since the January low at 0.6825.
The broad structure above combined with the intraday trend line below could present an opportunity to pyramid on the way down. Of course, we first need to see a close below the 4-hour trend line to help confirm that sellers remain in control.
A move lower would first encounter bids at the six-month channel support near 0.7330. A close below that would expose the May low at 0.7145 with a break there opening the door to a much larger move toward multi-year lows at 0.6825.
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