AUD/NZD Appears Stretched At The Lows

Share On Facebook

Although the trend points lower, mean reversion appears likely over the near-term according to some indications.

  • Z-score, consecutive days and lower Keltner-band test suggest mean-reversion
  • Potential for a rebound towards 1.0370 before heading lower
  • Trend remains bearish below 1.0490


Granted, AUD/NZD may not be a go-to currency choice for some, yet its bearish trend structure continues to print lower highs and lower lows. Since breaking beneath 1.0370, it’s trading at levels not seen since January’s flash-crash and could be headed for the September 2016 low at 1.0238. However, a few indications point towards a mean reversion ahead of its next leg lower.

Today’s low has tested the lower Keltner band, it’s Z-score (compared with a 20-day average) is below -2 and we’re currently within its 6th consecutive bearish day. It’s worth remembering that indications only ‘indicate’ but layering them together congruently can improve the probability of their effectiveness overall, so-long as they’re not simply repeating the same information.

The Z-score is far from perfect as, just like an RSI, it can spend extended periods in overbought or oversold conditions. However, we can see in recent history that troughs below 2 have coincided roughly with a retracement. The Keltner band becomes more reliable the further prices trade outside of it, yet here we note a lack of momentum on bearish days over recent session, which makes a downside extended move appear less probable over the near-term.

Furthermore, we’re now within its 6th consecutive bearish session, an event which has only occurred 0.8% of days since data from 2002. We can clearly see on the distribution that the greater the consecutive run, the probability of the occurrence decreases, which means the probability of mean reversion becomes greater.

Technically, we see potential for a rebound towards 1.0370. A counter-trend trader could use 1.0370 as an interim target, whereas a trend trader could consider bearish setups below 1.0370. If bearish momentum returns beneath this key level, it could be headed for the September low around 1.0238.  Whereas a break above 1.0370 brings the 20-day average into focus (this is ‘mean’ reversion, after all). However, keep in mind the dominant trend remains bearish beneath 1.0490.


City Index: Spread Betting, CFD and Forex Trading on 12,000+ global markets including Indices, Shares, Forex and Bitcoin. Click here to find out more.


CLICK HERE TO REGISTER FOR FREE ON ADVFN, the world's leading stocks and shares information website, provides the private investor with all the latest high-tech trading tools and includes live price data streaming, stock quotes and the option to access 'Level 2' data on all of the world's key exchanges (LSE, NYSE, NASDAQ, Euronext etc).

This area of the site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ADVFN Plc. ADVFN Plc does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ADVFN.COM and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Authors may or may not have positions in stocks that they are discussing but it should be considered very likely that their opinions are aligned with their trading and that they hold positions in companies, forex, commodities and other instruments they discuss.

Leave A Reply

Do you want to write for our Newspaper? Get in touch:

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V: D:20190620 06:56:23