Following the false break above channel resistance in early November, the NZDUSD became relatively predictable. A break of ten-month trend line support led to a retest and subsequent bounce from the confluence of support at 0.6970.
Even after the 200 pip bounce we had a decent idea of where sellers were likely to prevail. Last week’s high at 0.7168 was, in fact, a retest of former trend line support as new resistance.
Here’s how things look from the daily time frame:
However, the start of December brought with it a change in behavior. After closing well below the 0.7100 area between Wednesday and Thursday of last week, the pair closed back above the level on Friday.
Fast forward to the start of this week and we can see that the NZDUSD is once again trading below the key handle. This back and forth movement has made it difficult to read the price action.
Fortunately, there’s a pattern that offers some much-needed clarity. The ascending channel that extends from the November low has two contacts on each side making it one worth watching.
Depending on how the pair reacts to a final retest of channel support, this formation could present a favorable opportunity to get short. But first, we’ll need to see a close below the support level to help validate the idea that sellers are in control.
A break lower would target the confluence of support at 0.6970 followed by 0.6840. And as long as the 0.7170 area holds as resistance on a daily closing basis, my bearish long-term outlook is intact.
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