On a day when most traders are sitting idle until the Fed makes its long-awaited decision at 2pm EST, I want to share with you a pair that doesn’t get a lot of attention, but one that could be gearing up for a breakout in the coming days.
NZDCHF has been in a downtrend since the SNB surprised the market back in January. If you were actively trading on that day, I’m sure you remember it well.
More recently, the pair carved out a four-year low at 0.5755 on August 24th, another day that made its way into the history books. However the pair did manage to salvage 264 pips before the session came to an end, closing the day at 0.6019.
Since that time NZDCHF has been quitely consolidating below the 0.6280 handle. And over the last three weeks a familiar consolidation pattern has emerged in the form of a wedge.
A pattern such as this within an established trend usually indicates that a continuation of that trend is likely. That said, it is never our job to decide whether a pattern is bullish or bearish as the market always makes the final decision.
From here traders can watch for a selling opportunity on a close below wedge support. If the pair manages to take out the recent swing lows beginning in late August, there isn’t much standing in the way of a retest of the 2015 low at 0.5755.
What if the pair breaks resistance at 0.6280, you ask?
Considering the bearish trend that has been in place since January, I’m only interested in pursuing selling opportunities at this time. While a close above resistance could trigger a correction, it would be against the grain, which would significantly lower the odds of a successful trade.
Summary: Watch for a selling opportunity on a 4 hour close below wedge support. Minor support resides at 0.6080 and 0.6050 with a break there targeting the 2015 low at 0.5755. Alternatively, a close above 0.6280 would negate the bearish bias and could trigger a correction higher.
