When evaluating a currency pair, security, or index, sometimes keeping it simple is best, using straightforward trendline analysis to find our levels of support and resistance.
The Australian dollar/New Zealand dollar (AUD/NZD) is currently creating an interesting set-up while it sits just above a rising trendline, which it has tested twice since April.
The pair is also resting just above its 50% Fibonacci retracement level. Fibonacci retracements measure the price move between the high and low of a security, and then plots the key Fibonacci ratios as possible support and resistance levels. We also have a falling trendline, acting as resistance and which gives us a possible target if the currency pair does in fact appreciate from $1.28.
While technical analysis is an excellent away of evaluating a currency pair like AUD/NZD, it's important to keep in mind the economic implications, acting as outside forces on the pair.
CENTRAL BANK TALK
The Royal Bank of Australia (RBA) governor, Glenn Stevens, according to a report from The Sydney Morning Herald last Friday, feels the Aussie dollar is slightly higher than expected, but that the bank has not yet intervened in the forex market, "On balance it looks high relative to the mean prediction of models, though the size of that gap is not especially large in comparison to other forecasting errors or misalignments we've seen in the past. So it's a bit on the high side I would say, probably not dramatically so."
The Aussie dollar did not have a large price reaction to this statement, which is a positive sign for traders bullish on the currency, as it seems the market was not overly surprised on this quote from the RBA governor.
KEEP AN EYE ON RBA
With levels of support converging between the rising trendline and the 50% retracement, coupled with the falling trendline acting as likely resistance, a clear risk/reward trading area is created. However, if the RBA decides to begin throwing its weight around in the currency market, the trend can change very quickly.
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.