The Aussie currency pairs have been drifting over recent weeks after some big trending moves in the June quarter. Technical oscillators indicate, the Aussie is now oversold or overbought against most other currencies (depending on which way around the pair is quoted).

The market seems to be showing signs of being reluctant to take things much further at this stage. I can't help feeling that China's Flash PMI number might have created a much uglier day for the Aussie a few weeks ago than it has today. The flip side of this is that any positive Aussie news that comes along in the near future might produce a decent "pop" in terms of a corrective rally.

In these circumstances, one strategy I follow is to scan across all the major cross rates looking for set ups that seem the most attractive or that are perhaps closest to triggering. Hence today's post on AUD: NZD. Yes the spreads are larger, reflecting lower liquidity than in major pairs but, for trend followers looking for major moves, this is not a significant consideration.

Daily Chart

The set up on the chart below involves a potential double bottom or "W" reversal

The Bollinger Bands have been used to identify a situation where momentum is declining with the left hand low in the W being under the bottom band but the latest one being above it.

AUDNZD 24 July

One potential advantage of using Bollinger Bands to identify this type of situation is that they can alert you to the possibility that early entry strategies are worth considering instead of a more conventional double bottom technique of buying on a break above the peak between the 2 W lows.

The entry strategy on the chart waits for some confirmation of the 2nd trend low in the "W" by either

  • Buying with a stop entry order once the high of the candle making the W low has been well cleared or
  • Buying on a close above this candle high if that happens before the stop entry is triggered

Both these techniques are designed to wait for a situation where there is a clearer pattern of the market now making both higher lows and higher highs with each candle.

One approach to exit strategy is to place the initial stop behind the latest trend low and then move it up behind each new corrective low until the position is eventually stopped out.