Introduction
A lot of traders tend to focus on the British pound, the US dollar and the Japanese yen when trading the currency markets, but there are a few other pairs that have relatively low spreads, and are potentially very profitable to trade.
One such pair that often goes unnoticed by traders is the AUD/NZD pair, but it has been interesting to watch the price action of this particular pair in recent times because the New Zealand dollar continues to strengthen against the Australian dollar over time, and is not really showing any signs of reversing this trend.
Strong Downward Trend
One way of determining the current price trend is to add the 20, 50, 100 and 200-period exponential moving averages to your daily price chart, and see where the price trades in relation to these moving averages.
If the price is above all four of these moving averages, then it is in a strong upward trend, and if it is trading below all four of these moving averages, it is obviously in a strong downward trend.
Furthermore, if the price is also trading above or below these moving averages on multiple time frames, such as the weekly and monthly charts, for example, then you know that it is in an established long-term trend right now.
That’s precisely the case with the AUD/NZD pair because as you can see from the chart below, the price is trading below the 20, 50, 100 and 200-period exponential moving average on the monthly, weekly, daily and 4-hour charts:
Trading Opportunity
The question is; how you can actually capitalize on this long-term trend?
Well with such a strong trend in place, you might think that you can make money just by selling into any strength, and in many cases this may well be profitable.
However I would probably look for opportunities to go short on the daily time frame, and particularly around the 100 and 200-day moving averages because this is where the price is likely to run into some strong resistance.
Therefore any time there is a pin bar around these levels or divergence on one or more indicators, for instance, this would probably be a good time to take a short position.
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