EURNZD Carving a Head and Shoulders Reversal?

by Justin Bennett  · 

December 28, 2017

by Justin Bennett  · 

December 28, 2017

by Justin Bennett  · 

December 28, 2017

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For the past few days, we’ve focused on the EURAUD. At first, we were watching the pair move lower to test rising wedge support. Then yesterday sellers confirmed the pattern with a sub 1.5325 close.

But let’s not forget that the EURNZD, a counterpart to the EURAUD, was the first to break wedge support. And although prices have stalled a bit this week, the trade idea is still in play.

Over the weekend I promised to update you on the pair’s progress, namely the potential head and shoulders pattern on the daily chart.

Now, I’ll be the first to admit that the right shoulder is a bit shallow. Typically I like to see a pronounced shoulder like that of the late October swing high. But the price action since mid-October does have the look and feel of a bearish reversal.

That isn’t surprising, though. I wrote about how rising wedges tend to result in head and shoulders patterns. The exhaustive nature of a rising or falling wedge lends itself well to the first half of a head and shoulders reversal.

I’m still short the EURNZD from last week, but I am interested in adding to the position. For now, I’m just watching to see how the pair reacts to the potential neckline around the 1.6800 mark.

A daily close (New York 5 pm EST) below that would open the door to the November low at 1.6620. A break there would expose the October 17 low at 1.6350 (also the 50% retracement of the rising wedge) followed by 1.6140.

All that said, there’s no guarantee that the right shoulder is in place just yet. We could see the pair rally above the December 20 high, but at the moment, the chart below is what we have to work with.

Note that liquidity could become an issue here as we move closer to the new year. As such, waiting for a price action signal and reducing your position size may not be bad ideas. Of course, the ultimate safety measure is a seat on the sideline.

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EURNZD head and shoulders on daily time frame

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  1. Justin…..the reversal from the bottom short trendline could be as a result of over-extension…As at now, the price is with the moving averages and is poised for lower moves…if everything else remains constant…

  2. Good observation Justin. I saw the same earlier this week, but I’m expecting the right shoulder to level up with the left at 1.7210. As I am writing this, today’s bar is forming a bullish pinbar, so, maybe, just maybe, we still have 328-pip km to go before the reversal.

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