Like many other currency pairs in recent weeks, the price action on NZDUSD has been quite volatile and choppy. Despite the Brexit-inspired selloff on June 24th that contributed to a loss that totaled 250 pips, the pair managed to rally back this week to retest the June high at 0.7300.
The reality is that the 0.7200 area, which includes two prominent lows from February and March of last year, didn’t hold up on a daily or weekly closing basis as I figured it might. But as always, what the market does is the only thing that matters.
While I’m certainly not ready to turn overly bearish on the pair, there is a six-week pattern that is quickly making its way to the top of my watch list.
Since the May 30th low at 0.6675, the kiwi has carved out a large ascending channel against the greenback. What’s interesting about the price structure below is how the NZDUSD has tested support on three occasions since Brexit but has yet to reach the channel ceiling since the pre-Brexit highs.
This disparity signals that cracks could be forming within the six-week uptrend.
A close below channel support would make things interesting for those with a bearish bias. A move lower would first encounter support at the July 6th low of 0.7080 followed by the well worn 0.6986 handle.
Alternatively, a move higher from current levels would find resistance in the 0.7300 region.
I’ll continue to approach these markets in a conservative manner due to the increase in volatility of late. Whether that means scaling back on position sizes or sticking to the higher time frames (or both) is up to you, but some form of an adjustment is needed to cope with the recent influx of both volatility and uncertainty.
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