GBPNZD has experienced no shortage of volatility since April when the pair began its impressive 6,000 pip ascent that took just 4 months from start to finish.
The four-year inverse head and shoulders reversal certainly played its part to help the bulls with this impressive feat. I had no idea when I wrote the commentary about a 3,400 pip target that the pair would reach it in record time.
Fast forward to recent weeks and we can see that the pair has pulled back considerably from its multi-year high. A pullback such as this is healthy and necessary to keep the drive alive, even a pullback of this magnitude.
However this healthy “reset” may be coming to an end as yesterday’s session printed a bullish engulfing day at the 2.2700 key handle. This level acted as support on two separate occasions between June and July and appears to have just supported the rally efforts for a third time this year.
In addition to yesterday’s bullish engulfing day, the 4 hour chart has been molded by a sharp falling wedge since late September. Terminal patterns such as this typically signal reversals once broken, a confirmation that could materialize over the next 24 to 48 hours.
From here traders can watch for a buying opportunity on a 4 hour close above wedge resistance. However keep in mind that upcoming event risk for the pound could shake things up. Those events include the average earnings index as well as the claimant count change, both of which are scheduled for Wednesday at 4:30am EST.
Summary: Watch for a buying opportunity on a 4 hour close above wedge resistance. From there, key resistance comes in at 2.3370, 2.4020 and 2.4600. Alternatively, a daily close below 2.2700 would negate the bullish bias and expose the next key support level at 2.2260.
