An AUD/NZD Trade 20 Years in the Making

With AUD/NZD nearing a key support level that's stood for over 20 years, those looking at longer-term swing trading could have a great opportunity to buy support at the pair's all-time low.

Table of Contents

  • Do you know your Aussie dollar history?

  • Why technical traders should consider this trade

  • Which strategy will ensure your success

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Who doesn't love a good comeback story? Why, sports and movies would be far less exciting without them, and we wouldn't have sayings like "From worst to first," and "From the outhouse to the penthouse," either!

But comebacks aren't just reserved for sports and movies; the financial markets may be the most popular stage of all, and there could be a comeback for the ages shaping up right now in the Australian dollar (AUD).

Easily one of the hardest-hit of all the major currencies, AUD has been a bona fide casualty throughout the second half of 2014 (and before), especially against counterparts like the US dollar (USD), British pound (GBP), and as we'll explore now, the New Zealand dollar (NZD).

Technical Analysis: AUD/NZD Nears All-Time Low

AUD/NZD - Monthly Chart










As shown above, price action in AUD/NZD is approaching an all-time low at 1.0527 that hasn't even been tested since 2004-2005, and a similar test is shaping up on the weekly chart (not shown). In short, this is the cheapest AUD has been in the last ten years, which is why technical analysis traders on all time frames are eyeing a potential bounce from nearby support levels.

As intraday traders mind the economic news and data from the region and eye potential scalp trades, though, there is a very real probability that we'll see an eventual test of the all-time low (1.0527), a point where clear-cut swing trades could be placed ahead of a likely reversal back into the range that has predominantly contained the pair for the prior 25 years or more.

Economics and central bank monetary policies aside, this is a value opportunity many traders and investors won't want to pass up!

Technical Analysis: AUD/NZD Swing Trade for the Ages

AUD/NZD - Daily Chart










Currently, as AUD/NZD trades near 1.08 (at the time of writing), immediate fundamental catalysts like economic news and data out of Australia, as well as the intraday technical structure, are expected to fuel bounces from shorter-term resistance and create opportunities for intraday traders.

See also: Low-Risk Tactics for Trading the News

However, for swing traders who want to look beyond pitchforks and retracement resistance and instead scout more clear-cut trade set-ups using the bigger picture, it's all about the low at 1.0527. There, long-term swing trades worth potentially thousands of pips to the upside could be born as the currency pair simply reverts more towards the mean established over its mid-term price history.

Given the pure price methodology behind this set-up and no need for complex tools or indicators, it's a user-friendly trade and one that most anyone—trader or investor—could consider.

How to Trade it: Swing Trade in AUD/NZD

Trading a bounce off the floor of this 20-plus-year range in AUD/NZD would be a relatively straightforward, classic example of the "Buy low, sell high" methodology. Buy the pair at or slightly above the all-time horizontal support level (1.0527) with a stop approximately 50 pips below, and potentially targeting a very large, long-term move upwards.

Do pay particular attention to the timing of the entry, however, as AUD/NZD is especially in play at this point, and can be roiled by news and data releases, which are occurring half a world away for some. For that reason, consider trading end of day, or at least timing the entry so as to avoid any news-driven price swings, as this is a trade that's focused on the longer term, after all.

Remember that in the markets, there are no guarantees, so be mindful of risk management and never commit more than 1%-2% of total account capital to any one perfect trade.

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