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NZDUSD: Capitalizing on Friday’s Breakout Without Chasing

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Last Thursday I mentioned the rising wedge that had been forming on NZDUSD since the July 25th low at 0.6956. Approximately 24 hours after that commentary went out, Janet Yellen took center stage and managed to push the US dollar higher with rhetoric that was more hawkish than expected.

Just yesterday I mentioned the pattern again in the weekly forecast, only this time I highlighted the key technical break from Friday’s session.

The best and most favorable entry when trading a rising wedge is on a retest of former support as new resistance. However, those who have used technical patterns for some time will know that retests don’t always materialize.

In the case of NZDUSD, the prospect of a retest of the 0.7300 area appears less likely with each passing hour. Even as I type this, the pair is making another run at yesterday’s low at 0.7209.

One tenet of trading is to never chase a market regardless of how profitable you believe the resulting move may be. It’s a quick way to get burned by the market, especially one that has been relatively volatile of late.

Luckily there is more than one way to trade Friday’s breakout on NZDUSD, and the area I just highlighted at 0.7209 offers an excellent starting point.

Since August 17th this area has served as support on three separate occasions, making it a critical level in the context of the larger rising wedge pattern. And while the pair is still treading water above the key handle, a close below it could present a compelling short opportunity.

Note that this level is also the 38.2% Fibonacci retracement when measuring from the July low at 0.6950 to the current 2016 high at 0.7380.

From here traders can watch for one of two things to happen. The pair either makes it back to 0.7300 or fails to rally from current levels and closes below 0.7215. Either scenario could offer a trade setup that’s worth the wait.

Key support comes in at 0.7164 followed by the level I mentioned yesterday at 0.7110, which is also the 50% retracement of the five-week range.

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NZDUSD key level

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5 comments
Pawel says

We say support line is rather a zone, not a single line, because different people would draw it differently. Actually these is a way to draw support line in this NZDUSD wedge, where it is touched by these 2 end-of correction H4 pinbars

Reply
    Justin Bennett says

    Pawel, that’s why I wrote “area” in the following excerpt…and the area I just highlighted at 0.7209 offers an excellent starting point.

    So the region in question is outlined by 7209 and 7215.

    Reply
Ali Senejani says

Hi Justin, Thank you for your review on this pair. When you say close below support area, do you only look at H4 candle close? What if H1 candle closes below the support but H4 forms a bullish pin bar, similar to the current situation on NZDUSD…. Thanks.

Reply
    Justin Bennett says

    Ali, you’re welcome. The area has been respected on a 4-hour closing basis thus far, so I wouldn’t want to use a time frame lower than that.

    Reply
      Ali Senejani says

      Thanks for your reply. I am learning a lot from your posts. Hope to join you soon. Cheers.

      Reply
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