BLAKE MORROW: Hi, my name is Blake Morrow. I'm co-founder of Forex Analytix, and also a trader at Gellos Capital. This has been a very tough environment for the currency market, because we have seen extremely low volatility in most of the major currency pairs.
A lot of us have turned to exotic currencies. Today, that's one I'm going to bring you. I'm going to bring the Australian New Zealand forefront, so you can take a look at this particular currency pair, and see if this trade setup is right for you, as well.
Now, one of the reasons why I'm talking about the Australian New Zealand currency pair is, we've had both central banks meet just this last two weeks. The RBNZ met last week, and they became extremely dovish. The RBA, they met this week, and they pretty much stayed dovish.
But the shift in the RBNZ has allowed the New Zealand dollar to drop, and the Australian currency to strengthen. When you take that information, and you talk about the trade dispute that China and the US currently have, if things continue to improve between the US and China, especially as we approach the new election cycle, you might see the Australian currency benefit even further.
So without further ado, I'm going to take you over to the Australian New Zealand currency, and I'm also going to look at the Australian US dollar, and the New Zealand US dollar, and show you exactly what those currency pairs are doing, to help shape your decision in the Australian New Zealand currency pair.
Let's take a look at the computer. So before we take a look at the Australian New Zealand currency pair, what I'm going to do is I'm going to take you over to the Aussie dollar first, and then the Kiwi dollar, just so you can see what those individual currencies are doing.
In the Aussie dollar, what you're going to notice is that we have rejected the 200-day moving average on several different occasions. You can see it right through here, all the way since the end of last year.
Now, what's really important-- what's really important about the Aussie US dollar right now is we have a very tight consolidation, and the consolidation takes the form of what we call a triangle, which means that a breakout is probably going to happen in very short order.
Now, you'll notice the spike down in the Aussie dollar right here. This happened during the Asian session, at the beginning of the year. The reason why, you notice, I don't really count that in my trend line is because that period of illiquidity is when that move happened.
There weren't a lot of participants there. So we saw a lot of stops get triggered, yet no one was really there to take advantage of it-- none of the major players, so it's something I'm not really taking a look at. But, what you'll notice is the Australian US dollar is closing in on triangle support.
Now, I should preface this analysis with, I do really basic technical analysis. I've been doing technical analysis since the mid-90s, where I'd have to print out charts, I'd have to use protractors to draw Fibonacci levels, and technology has come a long way.
But what I've noticed over the years, is I continue to use just a basic technical analysis style, because it's easy to decipher, and when you're using correlations and other methods, as well, the basic technical analysis really just eases the process, especially when you're going through cross-rate analysis.
So that's the Australian dollar. You'll notice that we are approaching a breakdown point, OK? Now, I'm going to take you over to the Kiwi, or the New Zealand dollar. The difference between what you just saw on the Australian dollar, and what you're seeing in the New Zealand dollar, is we have a very similar type of consolidation.
You'll see it's not symmetrical, but a very similar, triangle type of consolidation. However, now the New Zealand dollar is actually breaking down. We are approaching the 200-day moving average, which is important to note.
But also, since we've already started this retracement, you'll notice that I'm going to draw just a quick Fibonacci, and we're currently trading through the 38% retracement, which, to me, means that we might actually see the 50%, or maybe even the 618 golden Fib level, down at 0.6623.
Now that you've seen the Australian dollar and the New Zealand dollar, and you see how the New Zealand is underperforming the Australian dollar, that's why I'm going to turn your attention over to the Aussie New Zealand. Now, what's important about this particular currency pair, is that we've seen the market contained in a very strong downtrend for a very long period of time.
This has been since, I would say, the last six months. One of the reasons why the Australian dollar has been so weak is because of the ongoing trade dispute between China and the US. But what we're seeing here, is we're seeing the Australian New Zealand dollar break higher, past this down-sloping trend line.
That's giving it a bullish spin. But if you take into account not only the Australian New Zealand is breaking through that trend line, that we also have what I would consider a descending wedge in the market, which is typical of a reversal pattern.
Once you look at it this way, you'll know that this is a typical reversal type of pattern, and we tend to have a pretty aggressive move out of these patterns, when they do occur. Once again, you'll notice that I did bypass that long wick there.
That did happen during a period of illiquidity, so therefore, I'm not paying attention to it as much as I would during a busier time of the market. Now, I'm going to point out a couple other specifics about this particular chart. You're going to see this previous support. It acted as current resistance.
Not only is it doing it today, but it also happened several weeks back. So, it's telling you that this 1.05 level-- 1.05 level, is a very important level of resistance for this particular pair. Now, since we've broken out of the descending wedge, that suggests that we are going to have an explosive move higher.
By the time you see this particular video, we will be past the Australian retail sales, which shouldn't move the needle too much, however, it could. And if that is the case, then you're probably going to be using this 1.05 level as an area of support to look for potential longs.
Because what I'm looking for with this particular breakout is to buy the Australian New Zealand dollar above 1.05, placing my stops below 1.04-- that means below this trend line, and then looking for a target a lot higher. So the question you might be asking is, well, what type of target would you be looking for?
Out of a descending wedge, I typically will target either the 50%, but optimally, the 618 retracement, which takes us to 1.0835, So 1.0835. And that's a decent risk-reward. You're risking about 100 pips to make about 300, 335. And if you get lucky, it might even be more than that.
Now, a lot of you might be wondering, well, what could entice this particular currency pair to go higher than the 1.08 level? Well, we are-- as I mentioned earlier, we are in an election cycle, and President Trump probably wants to make things better with China, and get the negotiation process passed, and find some sort of resolution to this trade war that we're dealing with.
So if that comes to pass, sooner rather than later, the chances of a continued rally in the Australian versus the New Zealand dollar is going to be much greater. Because the Australian dollar was impacted worst on the downside. So if you get a reversal, and it moves higher, it's probably because of not only a shift in the two central banks, which we talked about a little bit earlier, but also a shift in what's happening regarding the trade relations between the US and China.
So if China's economy continues to improve, and also we continue to see the trade talks progress, and possibly-- quite possibly, come to some sort of resolution where we remove the tariffs off China, you're going to continue to see Aussie buying, New Zealand selling, and a currency pair that can move a lot higher than this.
Now that we finish up looking at the Australian New Zealand currency pair, there are a few things to take into consideration. A lot of people, when trading exotic currencies, they get confused, because both currencies happen to be moving lower or higher against the US dollar.
So they wonder how the Australian New Zealand currency pair can move higher or lower when that is happening. It's just what rate that currency pair is dropping, versus the US dollar, or a currency is dropping against the US dollar. If the New Zealand dollar goes down faster than the Australian dollar, then that means the Australian New Zealand exotic pair is going higher.
The flip side to that is, if both currency pairs are going-- or both currencies are going up against the US dollar, as long as the Australian dollar is exceeding that of the New Zealand, the Australian New Zealand currency will be moving higher. My name is Blake Morrow, and that was my Australian New Zealand dollar currency trade setup I hope you enjoyed it and thanks for having me on Real Vision.