EURNZD has entered the final stage of consolidation after coming off the current 2016 high by more than 1,000 pips. As is the case with most technical structures, the multi-month pattern can be viewed a couple of different ways.
One view shows a descending channel that extends from the August 2015 high.
Based on the chart above and without considering other factors, a short from current levels might appear to be the most appropriate move. However, blindly entering at resistance doesn’t provide you with an edge. In other words, it does nothing to stack the odds in your favor aside from selling at resistance.
Also, the notion that the price action since April of 2015 has created a massive bull flag pattern is enough to keep me away from selling the pair at current levels. While the formation is by no means confirmed, the overall appearance of the structure in the chart above doesn’t strike me as overly bearish.
So rather than playing this as a channel, I prefer the wedge pattern you see in the chart below. The implications of a bullish break are the same, only now we have a way to identify and confirm a bullish or bearish break.
The wedge pattern above offers two possible scenarios, both of which come with a favorable risk to reward ratio. Also, by allowing this terminal pattern to break down first before considering a position, we’re allowing the market to make the first move which in turn offers a higher degree of conviction to any future trade setup.