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Riding the South Pacific Currency Charts

Friday, 27 May 2011 | 8:41 PM ET
New Zealand
Stockbyte | Getty Images
New Zealand

We all know trading is trickier now than it was in the middle of the boom. But technical patterns suggest there's a smart currency trade in the South Pacific.

Todd Gordon, co-head of research and trading at Aspen Trading Group, is enthusiastic about the New Zealand dollar, which is testing levels it hasn't reached since before the financial crisis. But, he told CNBC's Melissa Lee, you can't just blindly buy the way you could during the boom.

"You've got to be nimble, especially in the currency markets," Gordon says, while reviewing patterns on a three-hour chart.

Gordon notes that the kiwi appears to be trading in a channel, and that creates an opportunity. "Wait for a false break," he suggests. "Wait for a test of this 0.8215. Buy the pullback into support with a tight stop for a return to the highs." The idea, he says, is to "buy the break, down around the 0.8100 level, and position ourselves for a new high." Specifically, Gordon recommends buying around 0.8075 with a stop loss of 0.7995 and a target of 0.8215.

Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, agrees that the kiwi looks attractive, and notes that Chinese interest in New Zealand puts fundamentals in line with the technical patterns. But she points out that the New Zealand dollar is much less liquid than the Aussie, "Risk on, the kiwi's going to fly," she said, but if equity markets don't stabilize and economic reports are disappointing, "technicals alone might not be able to get this through."

You can watch the whole discussion right here.

Buying Blind
How to identify technical patterns that could make you money, with CNBC's Melissa Lee and the Money In Motion traders.

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