AUD:NZD - Bollinger Band set up.

AUD:NZD - Bollinger Band set up.

On 28 October, I posted details of a potential ABC sell set up in Aussie:Kiwi.

Since then, price has moved broadly sideways meaning the set up has neither triggered or been negated.

This is a set up that may be favoured by deterioration of the European debt crisis and/or by a softening outlook for economic growth. This could lead to the RBA following up on last week's rate cut by and lowering interest rates further into the neutral range. In New Zealand rates are already in the "accomodative" range at 2.5% having been moved down in response to the Christchurch earthquake. Kiwi interest rates look less likely to fall than Aussie rates at present and an increase back to neutral is on the agenda if economic activity picks up. Either way this carries the potential for interest rate differentials to narrow which would be bearish AUD:NZD

The chart above has Bollinger Bands overlayed. Thursday's high has created another peak in the Fib cluster zone I outlined in the previous post. However this 2nd peak is under the upper Bollinger Band indicating declining momentum. The first peak in the small double top or "M" type structure was outside the upper band indicating strong variance

This situation is often used as a sell set up under the M reversal strategy using Bollinger Bands and would be a potential short term confirmation of the bigger picture ABC set up. The set up would be triggered by a close below Friday's candle (blue arrow).