NZDUSD Descending Channel Setup (August 19, 2014)

NZDUSD has been moving inside a falling channel on its 1-hour time frame, reflecting a short-term downtrend. Price has just found resistance at the top of the channel and is moving to the bottom.

The channel support test might lead to a bounce for NZDUSD, as this lines up with the .8400 major psychological level. Stochastic is in the oversold zone, indicating that buyers could be in control of price action soon. In that case, a rally from .8400 could take NZDUSD back to the channel resistance near the .8460 levels.

Going long at .8400 with a tight stop and a target of .8460 could yield as much as a 2:1 return on risk for a short-term trade. Take note that this would be a countertrend setup though.

Event risks for this trade include the New Zealand dairy auction, as another decline in prices might lead to a steeper selloff for the Kiwi. On the other hand, a rebound could lead to gains for the pair as it would suggest that the sector is starting to recover.

By Kate Curtis from Trader's Way