Chart of the day 14th May 2018

Greetings one and all. Starting from today I will be doing a new feature for ForexLive. It will be the Chart of the Day post and I will put it under the technical section. The idea of the post is to give trade ideas for the coming sessions, days or weeks. Today's post is a swing trade idea for this week.

Last week RBNZ's Governor Orr came out and surprised markets with a more dovish stance than was being expected. One of the real clinchers for the dove's camp was when Governor Orr stated that a 'rate cut' was a real valid possibility. Earlier in his statement he had said that the risks to a hike or a cut were 'equally balanced', but his later emphasis on a cut being possible caused the dovish camp to cement a sell in NZD. Last week, as Adam pointed out to us, NZD was the weakest performing currency against the USD. So, part one of the equation is ready for a trade: sell NZD.

The Australian dollar has a yield advantage over the NZD and it's decline against the weakening NZD hadn't been making a lot of fundamental sense. At the end of Q4 RBNZ had a CPI miss of 1.6 vs 1.9 and Q1 saw inflation at it's lower end of the band at 1.1. Some folks have been looking for reasons to get long AUD/NZD for some time. Furthermore, with Australian budget day out last week, predicting a return to surplus for the economy in 2020, there were some positive longer term signs for the AUD. The data out for the RBA this week has been highlighted earlier by Eamonn and these are worth keeping your eyes on for potential risks or catalysts to the trade. Eamonn will have previews of these during the week , so ensure to tune in so that you don't miss out.

We are all set with our pair now; AUD/NZD long.

Where to enter? Well you could enter at market and put your stop below the bottom swing on the 4 hour chart. However, I favour a pull back here to the 38.2% or 50% fib level marked on the 4 hour chart displayed. I am going to be eyeing these levels for a long trade and then play the stop either below the swing point on the 4hr or a lot tighter when I see price move in my favour.

Risks to the trade? Well, data releases from the RBA will need to be factored in. NZD has one release, Annual budget release, on Thursday. As they are both commodity currencies , we don't need to worry too much about the price of commodities influence on one part of the pairs. That risk should be neutralised.