Daily Price Action

EURNZD Inverse Head and Shoulders in Play


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It goes without saying that the majority of market participants have been bearish on the Euro for some time, and for good reason. However it looks as though the Euro rally of late may still has some life left in it.

Let me be clear, I’m not turning bullish on the Euro over the mid to long-term. The shorter-term picture on the other hand shows some promise for the bulls.

There are two things that must be present in order for me to consider buying a weak currency such as the Euro.

  1. A favorable reversal pattern
  2. A potentially weaker quote currency

The current scenario taking shape in EURNZD gives us both. The pair has just confirmed an inverse head and shoulders pattern on the 4 hour chart. On top of that the NZD has been under heavy pressure since July of last year, losing more than 1,300 pips since that time.

But before we get into the reversal pattern, let’s get some context to find out why the pair might be changing direction at current levels. For that we’ll take a look at the monthly chart.

EURNZD monthly chart showing trend line support

As you can see from the monthly chart above, the pair recently came into a 15-year trend line. This level has been acting as support since May of 2000 and therefore represents a significant level where buyers are likely to step up.

Although the pair has been in a broader downtrend during this time, the rallies you see on the chart above have resulted in moves of several thousands of pips. So any bullish price action from this area should not be ignored.

In addition to this 15-year level, the daily time frame shows a bullish pin bar that formed on March 23rd. This pin bar rejected the same support level we just saw on the monthly chart.

EURNZD daily forex chart showing a bullish pin barAs you can see, the bullish pin bar shown above is well-formed and is rejecting the trend line from May of 2000. Yet another clue that EURNZD may be setting the foundation for a move higher.

Last but certainly not least is the inverse head and shoulders that was recently confirmed on the 4 hour chart. Although the pattern was confirmed on April 1st, I’m requiring additional confirmation in the form of a daily close above the 1.4525 key level.

Why is that?

The 4 hour chart below shows the 1.4525 level acting as support on March 6th, which subsequently acted as resistance throughout the end of the month. Therefore I want to see a daily close above this area before considering an opportunity to go long.

Note: We have NFPs tomorrow at 8:30am EST, so expect increased volatility across the market (another reason I’m requiring a daily close above 1.4525 before putting any capital at risk).

Summary: Wait for a daily close above 1.4525 and then watch for a retest as new support. Key resistance and measured objective can be found at 1.4772.

EURNZD inverse head and shoulders on the 4 hour time frame

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