On Tuesday I mentioned how the NZDUSD November breakout hinged on the upcoming Fed rate decision. The validity of the November 15th break of ten-month trend line support was being put to the test with a series of higher highs and higher lows.
But Yellen and crew didn’t disappoint. Not only did the pair close (back) below the trend line, but it also carved out a bearish engulfing candle during yesterday’s session.
One thing I pointed out in Monday’s commentary was that a daily close back above this trend line wouldn’t necessarily negate the bearish bias. The surplus of false breaks in 2016 meant that one more wouldn’t be much of a surprise.
Interestingly enough, Monday’s session appears to have done just that. Buyers closed the day above the multi-month level only to fall back below it following yesterday’s FOMC.
If we add that to the list, we have three factors that favor sellers going forward. They are:
- Yesterday’s bearish engulfing day
- False break above multi-month trend line
- Close below 4-hour channel support (see chart below)
From here traders can watch for a retest of the 0.7180 area as new resistance. A confluence of support resides at 0.6970. A close below that would expose the next level of support at 0.6840.
If such a retest doesn’t materialize, it may be best to stay on the sidelines. At current levels, you would need a 150 pip stop, which is unfavorable given that key support is just 120 pips away.
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