KIWI DOLLAR LIKELY TO FOLLOW SHARP AUSSIE DECLINE?

Given the strong positive correlation between the AUD USD and the NZD USD, the NZD USD could resume its bearish trend following the recent decline of the Aussie Dollar by nearly 600 Pips.

The Aussie Dollar has been steadily declining over the last several days after breaking the Support of the very large Pennant setup.


DAILY CHART- AUD USD





In breaking out of this Pennant, the pair broke a smaller Pennant and a Counter Trend Line that tested the Support before starting the breakout.


DAILY CHART-AUD USD






















Whenever large Consolidations are being broken, they normally form these smaller setups at Resistance and Support which "test" the strength of these boundaries before breaking out.

For its part, the Kiwi Dollar has also formed a small Pennant at the Support of its large Pennant as well, but has not yet provided us with a breakout signal.


DAILY CHART- NZD USD

























DAILY CHART- NZD USD






















Although both pairs are highly correlated, without a breakout signal, the Kiwi Dollar is now equally likely to rally back inside of the Pennant as it is to break short. If a breakout short takes place, it would be in sync with the trend on the Aussie Dollar, leading to strong gains for the US Dollar over the next several months. However, a False Breakout Reversal inside could also keep this correlation in tact if it coincides with a temporary pullback in the Aussie Dollar.

The main reason that the Aussie Dollar trade is on the Demo Account is that the breakout started and continued with Weak Candles. These types of signals tend to be associated with slow breakouts that can provide large trading gains. However, they are also notorious for leading to False Consolidation Breakouts....


DAILY CHART - NZD USD


















Once a strong signal is provided in either direction, Live Account trading of this pair is likely to be highly profitable. Distinguishing between these types of candles is therefore very important to avoid False Breakouts and unnecessary losses (Section 8 " Consolidation Trading on the Forex Market").



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Duane Shepherd
(M.Sc. Economics, B.Sc. Management and Economics)
Currency Analyst/Trader
Contact: shepherdduane@gmail.com
Twitter: @WorldWide876
Facebook: DRFXTRADING
Website: www.drfxswingtrading.com

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