AUD/NZD has been in a persistent downtrend since March of 2011, but the downtrend has really accelerated starting in March of this year. In the past 5 months AUD/NZD has dropped from 1.2680 down to a low of roughly 1.12, a significant and steep drop. With the Australian dollar beginning to show some signs of life these past few weeks, AUD/NZD may be primed for a correction higher. There are a couple fundamental catalysts that could push AUD/NZD higher, including RBA’s Monetary Policy Minutes, New Zealand Inflation Expectations, and Chinese PMI numbers, but if such a reversal is going to occur, there are some significant technical barriers that need to be overcome.
The key four hour moving averages stand as major technical resistance to any serious AUD/NZD reversal. As you can see from the chart below, the 100 period EMA (in green) is the first major EMA resistance and it has been significant several times in the past few weeks. Above that level would open up a move toward the 200 day EMA (in tan) which sits just above the 1.15 level. A break above both this levels could signal the beginning of a 200-300 pip correction higher in AUD/NZD, but those levels have been very powerful resistance for quite some time, and may continue to be resistance going forward.
Traders should watch the 100 and 200 period EMAs on the four hour chart for reversal opportunities, but should remain wary about trading counter-trend.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com