Looking for a Correction in the NZD/USD

Friday, 17 September 2010

We have been following the NZD/USD daily chart today, and it would seem from recent price action that a correction in the currency pair is on the way. The currency pair recently reached a high of .7380 just a few days ago – and has since dropped away quite substantially to .7255 at the time of close in the US today.

The chart we are looking at has an ascending trend line starting from the spike low at .6600 and traveling up to the trend low of .6946 which was set a few weeks back. Given this trend line and the strength of the current downwards spike, we believe that a correction in the NZD/USD could be as low as the ascending trend line at .7100.

So how do you take advantage of this trade, given that it is the weekend, the markets are closed, and the downwards spike has already begun?

Our advice would be to monitor the opening of the market on Monday and see whether or not the risk / reward is good enough to enter at this time. You would want to be placing a sell order soon after the market opens (if it doesn't spike downwards as soon as the market does open). A stop loss order would be placed above the recent high, and a take profit limit order would be placed at the target area of .7100.

All going well, it should take a day or so for the currency pair to move down this far. We believe that the currency pair will ride on momentum and therefore calculations at the current rate would indicate that a few days will be required.

There is no fundamental news coming out of either New Zealand or the USA on Monday of next week, and therefore the movers of the market will be solely technical.