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I’m going to begin the day today on the New Zealand Dollar versus the US Dollar [NZDUSD]. Starting here, on the Daily Chart, there’s two different trends we want to begin taking a look at here for this current pair. First off, the longer-term trend, going from the lowest low all the way down here at the bottom of the chart, close to the 0.7700-level, to the higher high all the way up here into the mid-0.8500s. That would be the first trend – the uptrend.
Then the second trend that we’re going to look at is the most recent trend development we’ve seen, and this fall that goes from that same high into the mid-0.8500s down to the current low here, into this yellow-shaded area into the 0.8240s. So, we have a previous uptrend, and currently the market is retracing and going back down against this previous uptrend.
Now, I’ve also taken a couple of fibs here; and I’m actually going to take the shorter one off and just leave the longer one for the moment. Taking the Fibonacci from the lowest low that we’ve just described of the trend to the highest high puts the .382 Fibonacci retracement level right here at the 0.8227-level. The bottom of that yellow-shaded area. Then, if we follow the bottom of that yellow-shaded area backwards in time, we can see historically this area has been support and resistance. Follow it back in time from the 0.8230 or so level; you could see, of course, support most recently here in this timeframe, but if you go back to the left-hand side of the chart, you can see historical congestion and support at the bottom of that yellow-shaded area. And underneath the yellow-shaded area, on the left-hand side, you could see resistance underneath that 0.8230-level on the left-hand side of the chart.
So, the yellow-shaded area, historically, going back in time, has been a critical decision point – an area where the buyers and sellers have fought it out for control of this currency pair. So, as the market comes back down towards this critical area of support and resistance – this yellow-shaded area – and that .382 Fibonacci level of the previous uptrend, we know that there’s a high likelihood of some support here. The potential at each one of these highlighted, shaded area, whether it’s yellow, or blue, or purple – whatever the color is doesn’t really matter. What I’m highlighting is these areas where the market historically and factually has had these difficult areas that we call support and resistance; and those become the decision points where the buyers and sellers jump in or out of the market.
So, as we challenge here, into this yellow-shaded area, we know there’s two potential opportunities here. First, as historically we’ve seen, it could find support and bounce up in the direction of the previous uptrend that we’ve just measured here just a moment ago. The other opportunity is that it breaks through the bottom of that yellow-shaded area, breaks through that Fibonacci level at 0.8230, and continues to be bearish in the direction of the current momentum, which has been going down over the past several days. So, there’s really two opportunities again. It’s either going to bounce off of it and go back up or it’s going to break through it and go back down.
Now, of course, as I’ve described in the Trading Room all the time, your best opportunities to sell are always going to be into resistance, because they provide lower risk and higher potential reward opportunities. This is into support. So, the expectation of selling at the current moment is not really something that I’m looking for, because we’re sitting on top of this barrier. Think of this yellow-shaded area – the bottom of the yellow-shaded area – as a brick wall. And until it breaks through that brick wall, I can’t expect that it’s going to continue to go back down again and continue the bearish trend.
So, as long as we sit on top of the 0.8230-level today, I’m looking for support and potential to bounce back to the blue-shaded area. The blue-shaded area of course is our next area of resistance. We follow that back in time. We could see the resistance here. We can even go back to the far left-hand side, along that blue-shaded area, and see historical support. In the most recent timeframe, we’ve seen several days. This is the Daily Chart. Several days where the market bounced around between the yellow and the blue-shaded area before finally breaking out and going higher.
So, again, we’re finding support right now in the yellow-shaded area. Resistance would be back into the blue-shaded area. So, again, if you were looking to sell it, your preference would be that it goes back up to the blue-shaded area before you begin to look for opportunities for resistance and selling. Otherwise, a break underneath 0.8230 becomes that opportunity.
Take that information down to the 4-Hour Chart; and as we get down here to the 4-Hour Chart, we can see that most recently we have tested back up underneath that blue-shaded area, back up underneath that resistance, and now we’ve fallen back into the bottom of the yellow-shaded area. What we’re going to do is learn from history. Go back in time. We could see. Going back in time, we could see historical supports all along this yellow-shaded area. So, again, as long as it stays above the 0.8230/0.8235-level, there’s potential to repeat history and bounce back up to the blue-shaded area once again, into the resistance.
And only if it breaks underneath it do I expect it will continue to pressure lower. So, what does a break look like? In my expectation, I’m looking for a breakout to be an open and close. I don’t simply want to see a false break, a spike underneath that level of 0.8230. I want to see an open and close underneath there before I have confidence it’s going to continue down at this point. Now, if I was already in a sell from up there in the blue-shaded area; if I sold it all the way up here into 0.8225, all the way up here in the blue-shaded area, then I’m not really worried about it. I’m protecting profit already. I’m moving my stop down to protect profit, and I’m just waiting for it to break underneath there.
If I’m not already in a sell, I need it to do one of two things. Go back up to the blue zone to give me a sell or break underneath 0.8230 to give me an opportunity to sell it. Otherwise, there is a chance here today, in the intraday, to go ahead and look for a very low-risk buy scenario, because if you look back in time, we could see that multiple times it has bounced off of this yellow-shaded area and gone back up. You really just don’t want to see what I’ve just described there in a breakout underneath 0.8230. So, if you look for a buy, you’re looking for a buy in this close as possible to 0.8230. You look for your stops just underneath that area, underneath that Fibonacci level, because we know that if it breaks underneath it, likely going back down into the 0.8190s. So, I might expect that if you were to look for a buy here into the bottom of the yellow-shaded area, your stop might go just underneath the 0.8190-level, underneath that top of that purple-shaded area, and you look for a bounce back to the blue zone or possibly a return of the previous uptrend for the NZDUSD today.
