On January 5 the EURNZD confirmed what we suspected to be a head and shoulders reversal. While the right shoulder was a bit shallow, it had all the markings of a topping pattern.
However, Friday’s 250 pip rally put things on hold for sellers. As mentioned over the weekend, Friday’s surge didn’t negate the head and shoulders, but it did raise some doubts.
One of those doubts was the bullish pin bar that formed on the weekly chart. But even that pattern had a few challenges to overcome.
For one, buyers needed to secure a daily close above 1.6860. I pointed out this area on Sunday. It just so happens that Tuesday closed at 1.6861, so it was right in that resistance zone.
My second doubt is the price action that surrounds the weekly pin bar. I like to see bullish and bearish signals preceded by a corrective move. I wouldn’t label the 700 pip drop that began on December 1 as a correction I’d want to buy.
Fast forward to today, and we can see that sellers have come out to defend that 1.6860 area. The overnight bullish momentum took prices to 1.6937, but the exuberance didn’t last long.
Now it appears that sellers have regained control. But as always, nothing is confirmed until today’s close at 5 pm EST. If price closes at or near current levels, we could have a bearish rejection candle on our hands.
Just bear in mind that a short position would challenge the bullish pin bar on the weekly chart. As such, it may not be a bad idea to use a smaller position size and perhaps scale in should sellers follow through on today’s candle.
Key support remains the 1.6630 area followed by 1.6350. The 1.6750 could also give sellers fits on the way down. While it’s still a long way off, the objective lies just below the September 2017 low at 1.6140.
Alternatively, should EURNZD bulls close the day (5 pm EST) above the neckline near 1.6860/70, it would negate the bearish outlook.
I’m going to hold off on any further considerations until today’s close.