Talking Points

-MACD Crossovers are used by Forex Traders to spot reversals in trend direction

- Using trend direction to filter MACD signals can reduce the number of false signals

- AUDZND has rallied to the top of a downtrend channel as the MACD line is crossing below its signal line generating a sell signal

Sometimes Forex traders do not want to trade currency pairs that are highly correlated to Europe, the US or Japan. Debt ceiling and US Fed “Taper Talk”, fast moving Yen pairs, Eurozone crisis; where can traders go to escape the excess volatility and headline driven markets?

The answer may lay south of the equator. The AUD/NZD also known as the “Aussie Kiwi” is not a fast mover but often displays very clear and predictable trends. Many traders like the slow and steady trends of AUDNZD.

Learn Forex: AUDNZD Downtrend

(Created using FXCM’s Marketscope 2.0 charts)

Charting AUDNZD

Notice the above chart as gains in this pair were capped on October 27th at 1.1579 and have been in freefall since making that high. There has been a series of lower swing highs and lower swing lows forming this downtrend. The rallies higher and the subsequent drop was confirmed a few candles later by MACD.

When I look for trends to trade, I like for them to be fairly obvious with price action moving down from the upper left to the lower right. AUD/NZD fits that description. When the red MACD line crosses down below its blue MACD signal line, a sell signal is generated. MACD is a lagging indicator so the initial move down has already started. MACD helps to confirm this move and gives a trader added confidence that there is a further decline ahead. In addition, a bearish rejection from the 1.1200 resistance zone a close below 1.1160 could lead to a move lower to the bottom of the channel near 1.1057. The 1.1030 level could be the next destination as a long-term 2005 trendline could offer support.

AUD/NZD may be no speed “demon” with an average daily range of 74 pips. However, the “slow and steady” approach won the race for the turtle over the rabbit and this approach may make Aussie Kiwi a winner as well.

---Written by Gregory McLeod Trading Instructor

To contact Gregory McLeod, email gmcleod@dailyfx.com.

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