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The EURNZD just reached a significant area at 1.7030/80. Not only is it the 2007 low (1.7028), but it’s also ascending channel resistance that extends from the May 2017 high.
To be fair, it isn’t technically a channel just yet. To be one, we need at least two swing points on either side. The February and June lows satisfy that requirement for support, but we don’t yet have a second swing point for resistance.
Whether or not we get one over the next few sessions is anyone’s guess. But regardless of what happens, this is one of my favorite ways to find support and resistance levels. Visit the lesson on finding ‘hidden’ levels to learn about this technique.
More often than not, drawing a channel early like this will expose other critical areas. In the case of the EURNZD, that area is the 2007 low at 1.7028. At the time of this writing, buyers have carved an intraday high of 1.7066.
It’s no secret that the Euro cross is trending higher. It has been since February of this year. With this in mind, I won’t entertain a short entry without a proper sell signal such as a bearish pin bar or rejection candle.
An alternate approach is to wait for a daily close below the trend line that extends from the June 27 low. Such a break would expose ascending channel support from the February low.
The bottom line is that I’m in no hurry to short the EURNZD. While I’m not opposed to going against the grain (some of my best trades have been counter-trend ideas), I do need a valid reason to do so.
And so far, nothing indicates that it’s worth the risk. That’s particularly true given recent New Zealand dollar weakness.
If the EURNZD closes above the confluence of resistance near 1.7030/80, I will not entertain a long position. I have a rule that I don’t buy upside breaks of ascending channels, nor do I sell downside breaks of descending channels. Those scenarios often result in false breaks.
I’m going to remain on the sideline to see how this plays out. A bearish candlestick pattern from the 1.7030/80 area would pique my interest. A daily close below trend line support from the June 27 low would also be appealing.