On Wednesday we discussed how the EURNZD was in the process of testing former wedge support as new resistance. The ascending pattern gave us reason to believe that buyers were tiring after six months of gains.
The trade idea is still relatively new, but so far so good. For those who followed along, there was a 4-hour bearish pin bar on the EURNZD shortly after my Wednesday commentary. Even the session closed formed a bearish rejection candle. Both signals offered 50% entries.
But in case you missed those, the EURAUD—a counterpart to the EURNZD—is also forming a rising wedge. However, unlike the EURNZD this particular formation hasn’t broken down just yet.
Wedge support that extends from the 2017 low at 1.3626 is still intact. It just so happens that the pair tested the diagonal level for a fourth time on Friday. We can see where buyers stepped in at the December 22 session low at 1.5325.
Because we’re coming up on what is arguably the slowest week for the markets, I’m going to ignore any breakdown next week. If sellers hold off until the new year, however, I will be very interested in a daily close below support.
The only exception would be a daily close below support followed by a candlestick pattern that’s too good to pass up. But even then I would use a relatively small position size given the holiday liquidity drain.
Where things get tricky is what happens after a daily (New York 5 pm EST) close below wedge support. I would argue that there’s a horizontal level near Friday’s low at 1.5325. To make things trickier, there is also some support at the June 1 and October 11 highs at 1.5230.
Depending on where and when the EURAUD breaks wedge support, those two levels could affect the entry.
I’m going to hold off on crafting a plan until I see where the pair breaks support. If it’s high enough, an entry could be possible without waiting for prices to clear 1.5320 or 1.5230.
Below the 1.5230 handle we have a key pivot at 1.5070/80. A daily close below that would expose the August to September support level at 1.4800 followed by the July low near 1.4440.