NZD/USD Bursts Above 0.7500

Thursday, 7 October 2010

People who have been trading the FX markets for some time will remember the incredible uptrend that the NZD/USD showed back in 2007 / 2008 - when it reaches highs of 0.8100 against the USD. This was achieved after a long, dramatic run up - with the RBNZ stating that the currency pair was far too high, and even intervening in the market at one point (around the 0.7800 level).

Currently, the currency pair is surging higher once again, recently breaking through the 0.7500 level, and continuing to rise well past there.

From a technical perspective, this simply represents an extension of the prevailing trend which was upwards for the past few months. The currency pair stalled recently, and looked as if it was going to form a double top. Initially the currency hit a high of 0.7400, and then sold off to a low of 0.6950. From that point, the currency pair went higher - reaching 0.7400 once again just a week or so ago.

At this point, the currency pair again sold off - and this is where it looked like a double top had formed. In fact, many commentators were calling for sell orders to be placed in expectation that the pair would continue lower - potentially to 0.7000 once again.

Of course - the market got fooled. With a sell down of 100 pips, the markets changed their mind, and pushed the currency pair higher. Currently, the pair is now sitting at over 0.7500 - an uncomfortable level for the RBNZ to deal with.

On the technical indicator side of things - the ADX is indicating no trend, as it is oscillating around the mid of its range. Additionally, the momentum indicators is hovering around its midpoint, and looking as if it won't be changing any time soon.

So how do we play the recent NZD/USD setup? Well, our opinion is that we play the prevailing trend - and that it, buy the NZD/USD. We have placed a buy order at the current levels, and therefore executed at a market price of 0.7502. We look to target the next key level of significance which is 0.7600.

On the stop loss order side, we have placed a sell order just under 0.7500 - so that if the market does correct or reverse, we wouldn't post any losses on this trade.

We expect the NZD/USD to take around a week to reach the target level of 0.7600. If the level isn't reached by mid next week, we will close out our position at any profit, considering that momentum has slowed.