FX Analysis

Kiwi taking flight

Kiwi taking flight

By John Sheridan, Trade With Precision

One currency pair that has caught my eye right now is NZD/USD and it’s showing a few signs that it could be a potential trading opportunity. As ever, what I want to see is some compelling price action across multiple timeframes and I believe that this pair ticks those boxes.

As you can see from the monthly chart below, it’s apparent that price had been trending downwards since mid-2017 before putting in a significant bottom in March 2020. The market swiftly rejected the move lower and since then price has shown strong bullish momentum, cleanly taking out the previous high to end the multi-year downtrend.

The current monthly candle looks extremely bullish and is now testing the 0.7000 level, with the momentum being confirmed by convergence on both the RSI and MACD.

Moving down to the weekly chart we can see that there is an uptrend at play, making a clear series of higher highs and lows with the moving averages (MA) displaying a fanning pattern with the 10-period MA above the 20 and the 20 above the 50, signifying a potentially quality trend. Again, the trend momentum on this time frame is confirmed by the indicators and price has gone cleanly through a level of resistance at 0.6450 before coming to test the 0.7000 level.

The daily chart below tells a similar story to the weekly, with strong price action and a confirmed trend Price is not over-extended from the MA, suggesting that if price does break cleanly though the 0.7000 level it could well have enough energy to continue its upwards trajectory.

The MACD is converging and while the RSI isn’t making a higher high in line with price, it is making an equal high and therefore not diverging. It therefore isn’t raising a red flag that would nullify a potential trade.

I will be looking for price to close about the 0.7000 level and will then be either looking for a pullback to re-test the 0.7000 level, or looking for an entry on a lower timeframe chart. That could possibly be a pullback to the buy zone delimited by the 10 and 20-period MA. 

A stop below a previous swing low will be how I will look to manage risk. And once the trade has reached a one-to-one risk-to-reward, I will look to close half of the position to help control risk.