The NZDUSD has broken free from its chains. Wednesday’s RBNZ statement was enough to push the pair out of its 0.7300 comfort zone, but yesterday’s 80 pip selloff is what sealed the deal.
We’ve discussed the importance of the 0.7240 area for quite some time now. The level acted as a key pivot for the pair in the second half of 2016. But more recently, 0.7240 supported prices on seven separate occasions starting with the January 25th session.
With yesterday’s close well below this figure, the 0.7240 handle becomes resistance. And while I don’t expect the pair to get back to this level today, a new week usually involves a partial retracement of the previous week’s movement.
So what does that mean for us?
It means that any retest of 0.7240 as new resistance next week could present a compelling opportunity to get short. And if we get a favorable entry, my initial target will be 0.7120, which offers a potential profit of 120 pips.
Also, the NZDUSD is just five hours away from printing a bearish engulfing candle on the weekly chart. And given the 500 pip run up over the last six weeks, a turn lower could last for quite some time.
Only a daily close back above the 0.7240 handle would negate the bearish bias.
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