The US Fed will raise interest rates at some time this year, right? The RBNZ will cut rates tomorrow. Right? US economic growth is accelerating, and NZ decelerating. So NZD/USD still has a lot further to fall?
One reason to take a contrarian approach to trading is the potential for superior reward to risk ratios. Many purely technical traders obtain good results from trades that go against the market fundamentals, or at least the consensus understanding. The NZD/USD chart is potentially highlighting exactly this sort of trade:
Note the adjustments the market made to a change in interest rate expectations. Since December 2014, the clear signals from the Fed towards a lift in rates checked the rise in NZD/USD. In May, the RBNZ flagged a shift to an easing bias, and duly cut rates in June. This shift saw the pair fall more than 12 big figures, from above 0.77 to below 0.65. Now, a number of technical indicators are pointing in the opposite direction to these fundamental factors.
Note the cross of the MACD well below the zero line. This buy signal is used by some traders as a stand alone, notwithstanding the two false signals generated over the last three weeks. More cautious traders may wait for a breach of the down trend line, currently around 0.6675.
The Fibonacci retracements are pointing to targets at 0.6980 and 0.7275. These may inform stop loss placement. A conventional approach is to place the stop loss below the recent low, at say 0.6475. However, more aggressive traders, prepared to make multiple entries, may place tighter stops below the trend line with a view to building a larger position.