NZDUSD Clears 0.6715, Targets 0.6850

by Justin Bennett  · 

November 7, 2018

by Justin Bennett  · 

November 7, 2018

by Justin Bennett  · 

November 7, 2018


Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.

Click here to get access to the same charts I use.

NZDUSD bulls are at it again. On Sunday, I discussed a potential buying opportunity just above 0.6600. The pair had just cleared descending channel resistance and was looking increasingly bullish.

The recent bull move has been no surprise to readers of this blog though. I wrote how the NZDUSD market structure hints at a reversal back on the 16th of October. The market was trading at 0.6590 at the time or about 200 pip below today’s price.

Although we never quite got a retest of the 0.6600 support area I mentioned on Sunday, you could tell something was brewing by the market’s refusal to move lower on Monday. And by Tuesday, it was clear that buyers were in control.

You may recall from Sunday’s commentary that 0.6715 was the next key level on our radar. At the time, it was still serving as resistance. You can see how this area acted as support throughout July and later rejected the August advance.

However, buyers didn’t give much thought to it during Tuesday’s rally. Instead of reversing or even pausing, NZDUSD bulls closed the pair well above it.

Yesterday’s 0.6736 close meant that our key level at 0.6715 is now acting as support. And just as we’d expect, the pair caught a bid from 0.6715 earlier in today’s session.

The one downside to buying the New Zealand dollar at current levels is the distance from the daily mean. As you probably know by now, I use the 10 and 20 exponential moving averages (EMAs) to represent the average price on the daily time frame.

At the moment, the pair is approximately 150 pips above the mean. Even this morning’s retest of new support at 0.6715 was about 90 pips above the 10 and 20 EMAs. It’s always a bit risky to enter when a market gets overextended like this.

The counterargument to that is that separation from these moving averages is indicative of strong momentum. And that’s what we want when looking to buy or sell a market.

But for me, I need to see a reversion to the mean before I’ll consider an entry. For the NZDUSD, that would be a pullback into the 0.6715 area over the next few days.

Notice I wrote, “over the next few days”. It’s imperative that we see a gradual pullback into new support. A sudden drop to 0.6715 would suggest buyers are losing control, in which case a wait-and-see approach would be the best bet in my opinion.

A gradual pullback into 0.6715 followed by bullish price action would set the pair up for a run at the next key resistance at 0.6850. If the market doesn’t pull back and you aren’t in this one yet, it may be best to stay on the sideline so that you aren’t chasing a runaway market.

Alternatively, a daily close at 5 pm EST below 0.6715 would open the door to the support area I mentioned on Sunday at 0.6600.

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12  Comments

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  1. I was looking at this pair yesterday sir. I was hesitant to enter because the daily mean is too far away. I will keep an eye on the next sessions to see if it’s going to pullback. Thank you Justin for this kind of analysis. It really helps. I’m also starting to be patient and look for the right move and if there is no signal, I will stay out. I hope that I can join your team soon for you to become my mentor.

    1. Hi Joseph, it can be a challenge when a market gets overextended like this. On the one hand, you don’t want to miss out. But on the other, an overextension increases the likelihood you’ll get caught on the wrong side of the market if you enter prematurely.

      Sometimes the best trade is no trade even if momentum is on your side. There will always be other opportunities. 👍

  2. Hello Justin…I have been reading your analysis for a long time now…I really appreciate your analysis and whatnote…I am requesting for your outlook, on the GbpJpy..When is it going to be bearish?..

    1. Glad to hear it’s helping.

      Nobody “knows” where a market is going. You have to look to the clues a market offers, and right now I see no reason to get bearish GBPJPY.

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