The Stage Is Set For the NZDUSD To Make A Channel Bottom Retest

By Adam | Thursday, November 24th, 2016

12 months NZDUSDThe NZDUSD has traded in a rising channel for more than 12 months, but last week was the closest that the pair came to breaching that channel.
The price has since then recovered by a hairpin but this does not nullify the notion that the bearish stance for the most of September to November is over.

It is still too soon to say that the channel has contained the bears.

USDNZD 12 month channel

Chart: The NZDUSD at the bottom of a 12-month rising channel

Important price levels to watch

With the yearly high at 0.7850, the 19th May low of 0.6670 remains the next visible bottom after July’s bottom was tested during this week’s open. This gives an almost-picture perfect setup if a Fib line is plotted between 0.7850 and 0.6670. It shows that the 38.2% Fib is what is so far preventing the bears from pushing the price further lower.
The 38.2% Fib has so far been the 5 month support and has now been tested once this week and once in July. It also coincides with the current channel bottom, a region where bears may regroup and want to breach comprehensively for the first time in over a year.

12 months NZDUSD

The September to November price action also plots a genuine heads and shoulder pattern on this same perspective. This adds more credence to the view that the channel bottom is still likely to be tested for a second time, keeping the bulls cautious about resuming long positions on the pair with the hopes of driving the pair back to the channel top as the rest of the year has been.

The pair is also open to a lot of news exposure this week, with crucial minutes on the interest rates expected from the Federal Reserve. The previous bullish action on the NZDUSD can also be attributed to last week’s positive commodity results from New Zealand, but that was not strong enough to sustain the pair to make a new top.

The pair remains trading in the lower highs and furthermore, the October bottom has now breached in the last 2 days of trading.

Possible trade idea

Traders remain in a bearish bias even with the current profit taking. A post news environment should allow traders to SELL at a higher level than the current. One could expect to sell the rallies, but count on the 61.8% Fib (0.7175) to cap them. The week’s high of 0.7085 could be the chosen entry at the moment, with targets heading into 0.7000.

Published in News & Analysis

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