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I’m going to begin the day today on the New Zealand Dollar versus the US Dollar [NZDUSD]. Today I’m going to start on one of the larger compressions – the Weekly Chart – because it gives us a longer-term perspective of what’s been happening with this currency pair. The bigger picture, and then we can begin to whittle it down to some of the smaller compressions.
First off, here on the Weekly Chart, we could see a pattern developing over the past couple of years. Going back to 2011, where we could see it has been overall moving higher. The price has overall been moving higher and we could see higher lows along the bottom black trend line, but we can also see, since 2011, capping the high here that we’ve seen lower highs. We could see the high up here at the top, and I’ve connected the next high with the black trend line. And of course now we can see the current market coming right back up to challenge that black trend line – that bearish black trend line.
So we see somewhat of a consolidation or contraction pattern for the NZDUSD, as the highs are getting lower and the lows are getting higher. But the most interesting part about that right now of course is that we’re at the very top of that triangle pattern, testing into resistance. I put two red horizontal lines here to represent historical resistance. You follow it back in time. You go right back here to April of 2013 was the last time we were in this price zone, right into the upper 0.8500s, and we could see that it found resistance and fell all the way back down here into the 0.7700-level at the bottom of that trend.
So, quite a change in the price action as it tested into this price zone and into this resistance. The top red line of course represents the spike high of that last time we were here, back in April of 2013. So, this is our resistance zone now. We have the black trend line coming from the top and the two red trend lines, or red horizontal lines, representing our resistance zone.
So, now let’s go ahead and take that information down to the Daily Chart. And of course there’s the same black trend line coming down from the top. There’s the same horizontal red line coming right here into the 0.8580-level. And we could see yesterday the market came up in a rapid fashion, testing into that resistance, and quickly the sellers came back in and repelled the market and drove it all the way back down here into the low-0.8500s, leaving a small candle body with a larger wick on the top.
Some would interpret this as a shooting star candlestick and a reversal pattern, so what we’re looking for now is the potential for this to turn around and go back in the other direction for a period of time. It could be very long. It could be very short. But definitely something that we’ll want to pay attention to over the next few days, going into early next week; is the potential reversal pattern setting up here. If we get right back up underneath the yellow-shaded area, it could be our first or next clue I guess I should say that we’re looking for some retracement.
Of course a break of the blue trend line also gives us that clue. So, for the day today, we’re looking for either a hold here and a challenge back into the resistance highs at 0.8580 or the beginnings of a turnaround and a turn back underneath this yellow-shaded area, back underneath the 0.8500-level, and we begin looking for reversal for this currency pair.
Let’s go ahead and take this and zoom it in here on the Daily Chart and get a little bit closer. Of course, for the past several days, the Forex Black Book trend bar has been green at the very bottom of the chart, showing us bullish price action. We don’t really need the green trend bar to show us that we’ve been in an uptrend. Now, an uptrend has higher highs and higher lows, and that’s clearly the pattern of the trend right now. If we’re going to see a change of the trend, a reversal of the trend, we would expect to see a change of that pattern and we’d expect to see lower highs and lower lows.
Now, we don’t have that yet and it’s just the beginning stages of what could be potentially a reversal here for this currency pair, but definitely something that we’ll want to pay attention to. As long as we have this small candle body, the longer wick implying that the sellers are trying to take control of this pair, we’re looking for the creation of new indicators of a downtrend, which would be a new lower high likely underneath the blue trend line, the yellow-shaded area, and a new lower low, which would break through this area right here and make a new lower low likely down into the 0.8400-level.
Now, if you’re on the opposite side of this and you think, “Well, I just don’t think the buyers are out or done with this currency pair,” that’s fine. Your lowest risk opportunity is likely here in the yellow-shaded area just above 0.8500. If you’re looking to buy this, I would look for buys into the 0.8500-level, targeting back to the 0.8585-level, the red line at the top of the chart. And of course a break of that wick high, we’ll likely look for the continuation of the uptrend. But I just don’t think that’s the main focus for the day today. Likely looking for a breakdown of the yellow-shaded area and beginnings of reversal for this currency pair.
So, for those of you that are deciding to sell this currency pair, at least right now your stops are above the last wick high. The high of yesterday’s candle is 0.8604. So, keeping that in mind, using appropriate risk strategies and margin management strategies, keeping in mind your potential risk in the stop placement, using appropriate trade size. Now, it could also be that we see the market challenge back into the 0.8580-level once again. As long as it stays underneath this last wick or last spike high here, there is still potential for reversal to go back down. If it ever breaks above here, we’re likely looking for the continuation towards the 0.8670-level for the NZDUSD.
But I think we’re likely setting up here for the next week or so, at least for some reversal. Back under the yellow-shaded area, back underneath 0.8500, and a target back to 0.8400 and the blue-shaded area.
One last thing here on the Daily Chart. Let’s go ahead and take Fibonacci retracements of this last trend range. Lowest low to highest high puts the .236 fib at 0.8473. A likely target for any sellers for the intraday. Anything underneath there, we target back to the blue zone because down here in the blue zone is where the .382 fib of that same trend range sits for the NZDUSD.
Taking it down to the 4-Hour Chart is not really going to change our mind about this, but definitely some interesting things happening here also. Even here on the 4-Hour Chart, we see that we have a potential shooting star candlestick with the smaller candle body, the longer wick on top. We’ve already seen some reversal off of that candlestick where we’ve seen the market fall from the open of the next candle, which is 0.8560, back down towards the 0.8515-level. We’re now settled out here just above our yellow-shaded area.
So, again, if you’re looking to buy this currency pair, this becomes your opportunity to buy it. Here into the 0.8515-level, you look to target back to the high. The other side of that of course would be a breakdown of 0.8500. We begin the next phase of the reversal, a challenge back down here into the 0.8460s and 0.8470s. And then, beyond that, we break through the blue trend line and challenge all the way back down to 0.8400 for the NZDUSD over the coming weeks.
