The NZDUSD is getting closer to a confluence of resistance that I mentioned exactly one week ago. The 0.7300 area is the intersection of two trend lines, one from the 2016 high at 0.7484 and the other from the 2016 low at 0.6346.
The area surrounding this intersection provides a confluence that will likely attract offers that could drive the pair lower.
With that said, the bullish momentum of late has been so intense that I’m inclined to wait for bearish price action on a retest of the 0.7300 area. There are two signals in particular that I’ll watch for over the coming sessions.
The first sell signal would be a bearish pin bar on the daily time frame. A long upper wick near 0.7300 would suggest that the tables have turned and that supply is beginning to outweigh demand.
The second signal could come in the form of a bearish engulfing day. An aggressive selloff after such an impressive rally would indicate that buyers are having trouble finding value at current levels.
In addition to these two signals, I’ll also be keeping a close eye on the intraday charts for signs of weakness.
As favorable as a selling opportunity may appear in this region, I’m in no hurry to short the NZDUSD. The pair has a way of sustaining trends longer than most expect, which can leave you on the wrong side of the market in a hurry.
In fact, we could see the pair spike as high as 0.7330 before encountering enough selling pressure to drive prices lower.
I’ll discuss downside targets if and when a quality opportunity materializes.
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