I wrote a piece on Monday regarding NZDUSD where I asked the question, can short-term gains buck big-picture trends? In other words, can the recent bullish momentum overcome the bearish overtone of the weekly and monthly charts?
So far, the bulls are doing their part.
But they aren’t out of the woods just yet. In yesterday’s lesson, I wrote about the technique of using three points to draw equidistant channels to determine where a currency pair may find support or resistance.
It just so happens that this exact scenario just unfolded on the NZDUSD 4-hour chart. But before we get to that, let’s take a look at the (interim) technical break on the daily chart.
Based on the chart above, this appears to be a clear buying opportunity should the pair close the day at current levels.
But there is one critical level standing in the way of calling this a clean breakout.
If we use the two swing lows from January 20th and March 16th along with the swing high from February 4th, we get a clear visual of where NZDUSD was likely to find resistance ahead of today’s session.
Sure enough, the pair ran into selling pressure at 0.6960 and has since lost approximately 35 pips from today’s high.
With this in mind, I’m working off of two possible scenarios. If we get a 4-hour close above channel resistance, we could see a move back toward the lows from February and March of last year at 0.7175.
On the flip side, should the pair continue to lose ground from here and close back below 0.6870, we could see a move back toward 0.6720 over the coming sessions. This scenario would be especially favorable if we see a daily close (5 pm EST) below 0.6720 as it would produce a bearish pin bar.
To be clear, just because channel resistance is currently in the driver’s seat does not mean that NZDUSD will selloff from current levels.
Instead, think of the price structure below as a way to determine when a clean breakout has occurred. Knowing it exists also helps us preserve our capital as we don’t want to find ourselves buying into resistance.
As it stands right now, this could go either way. So we’ll just have to sit tight and let the market make the first move.