Forex trading: What's coming next week

Nick McDonald

New Zealand Dollar
The kiwi has sold off for six days in a row now, from 81.85 to today’s price of around 79.70 -- but don’t expect this to continue for too long. This is normal price behaviour for any market to have some profit taking come into play in the scope of a longer-term uptrend. In fact, not only is it normal but it actually has to happen – prices cannot and do not go up in straight lines, they have to pull back. The weekly chart uptrend remains strongly intact and we are currently sitting just above a healthy 61.8% pull back of the most recent move up from the lows at 78.00 made in July.  Expect prices to find support around current levels and stage a new rally to the upside. If we can close this week above the big number of 80c then it will be a particularly bullish sign leading into next week.

US Dollar Index
Watching and gauging the strength of the US dollar (USD) is vital to any currency trader as all other markets are led by the world’s benchmark currency. The best way to do this is to look at USD versus a basket of currencies, by monitoring the chart for the USD Index (USDX). The USDX is showing weakness overall although has had a somewhat neutral, perhaps even slightly bullish during last week. What happens in the week ahead is going to set the platform for the next 2-3 months and at this stage I expect the USD weakness to continue. A much bigger pullback is due in the USDX and perhaps even a resumption of its multi-year downtrend which is looking highly possible from these levels. If the USDX continues to weaken, expect to see GBP/USD, EUR/USD, AUD/USD and, of course, NZD/USD having a particularly strong run higher in the coming months.

Other Currency Pairs to Watch
The best plays in the currency markets are always going to be pairing up the strongest currencies at any one time and trading them versus the weakest. This is where the best trends are apparent and therefore where the highest probability trading opportunities lie. Some of the strongest short-term trends you will find in the currency market right now are:

• EUR/AUD – the Euro has performed particularly strongly and the Aussie has been among the weakest of currencies over the last fortnight, making the EURAUD pair chart a treat for traders. I am currently long and plan on staying long into next week.

• GBP/AUD – Sterling is also going through a resurgence and has been rampaging north versus the Aussies dollar in particular.  Currently around 1.5335, expect 1.5500 to be tested next week.

• CAD/JPY – don’t let a quiet week fool you. CAD/JPY is basing out nicely and finding support at its key level of 79.00. If it can rally and break 79.80 then that is confirmation it should 81.00 and even 82.00 in the coming weeks.

Nick McDonald uses technical analysis and charting techniques to trade in forex markets, stock indices and commodities.

For training on the forex markets or to learn more, visit www.tradewithprecision.com.

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NZ Market Snapshot

Forex

Sym Price Change
USD 0.7845 0.0017 0.22%
AUD 0.8994 0.0002 0.02%
EUR 0.6203 0.0010 0.16%
GBP 0.4929 0.0003 0.06%
HKD 6.0847 0.0131 0.22%
JPY 84.0120 0.0180 0.02%

Commods

Commodity Price Change Time
Gold Index 1233.8 -1.760 2014-10-14T00:
Oil Brent 85.4 -4.470 2014-10-14T00:
Oil Nymex 81.2 -4.530 2014-10-14T00:
Silver Index 17.4 0.035 2014-10-14T00:

Indices

Symbol Open High Last %
NZX 50 5145.9 5168.7 5145.9 0.33%
NASDAQ 4246.2 4281.3 4213.6 0.32%
DAX 8765.4 8854.4 8812.4 0.15%
DJI 16321.9 16463.7 16321.1 -0.04%
FTSE 6366.2 6403.4 6366.2 0.42%
HKSE 23087.5 23230.3 23048.0 0.67%
NI225 15009.8 15044.3 14936.5 -0.13%