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Trade: New Zealand Dollar at Inflection Point


After falling for much of July, New Zealand Dollar Futures (6N) have stabilized in August. The stabilization occurs right near the 78.6% retracement level of the June rally. In an overall uptrend this pause above support indicates the uptrend could continue, or at least head back to test recent highs in the 0.8784 region.

Figure 1. New Zealand Dollar Futures (6N - September Contract) Daily Chart

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If this plays out--and it's always an "if"-- a stop can be placed below the August 12 low at 0.838 with a target at 0.87 or higher.

At a current price of 0.8459 that provides about a 3:1 reward to risk, while trading in the overall trending direction and with the potential for a greater profit if the uptrend does indeed continue (price proceeds above former high).

The downside is that the trade goes against short-term momentum which is down.

To give the trade a bit more room a stop can also be placed below the June low at 0.8325. This reduces the reward to risk closer to 2:1, but the target can be extended higher if the uptrend continues beyond the former high, improving the ratio.

The actually NZD/USD forex chart, upon which the futures are based, shows the long-term dynamic playing out in the pair.

Figure 2. New Zealand Dollar / U.S. Dollar (NZD/USD) Forex Pair Daily Chart

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