Over the weekend I mentioned the 0.7200 area on the NZDUSD. At the time the pair was trading below 0.7100 and looked more likely to break ten-month channel support than it did to retest 0.7200.
Yet here we are less than four sessions later watching the risk-sensitive pair chop around the 0.7200 region.
In most cases, we would look at a breach of this area as a sign of bullish continuation. However, the emergence of a broadening wedge pattern on the 1-hour chart tells a different story.
Unlike a narrowing wedge – which is often deemed to be a continuation pattern – a broadening wedge is typically viewed as a sign of exhaustion. The only downfall here is that we’re analyzing a 1-hour chart, which isn’t nearly as convincing as the daily or even the 4-hour time frame.
With that said, the structure below would at least be a concern if I were long the NZDUSD. I’ll let you interpret that as you will.
From here there are two ways to play any further weakness in the New Zealand dollar against the greenback. The first is to use the breakdown in the structure you see in the chart below as an early warning sign and perhaps look for a favorable opportunity to get short.
But while this could present a setup in the near-term, the larger and potentially more profitable opportunity would materialize with a break of ascending channel support near 0.7070/80.
I’ve mentioned this pattern several times in recent weeks and still believe that a break below the 0.7070/80 area would indicate a significant turning point for the pair. But until that time comes we should anticipate more range-bound price action.
Want to see how we are trading this setup? Click here to get lifetime access.