The NZDUSD is once again challenging support-turned-resistance. The trend line that extends from the January low held as support through October before breaking down on November 15th.
Over the weekend, I commented on the bearish rejection candle that formed from this level last Thursday. We also discussed the 4-hour ascending channel that could expose the 0.6970 area should support fail.
But today I want to talk about the price action that’s transpired in the last 24 hours, which has now taken out last week’s high, albeit by just a few pips. It’s also removed me from a half-sized position I had on from the previous week.
Many traders would call this a break of new trend line resistance. However, when trading from the daily time frame, it’s important to remember that what happens intraday (between the open and close) is just noise.
It can sometimes take you out of positions, but this intraday movement isn’t much help when attempting to determine the likely path forward.
So while buyers may succeed in closing today’s session above the 0.7200 area, nothing is confirmed just yet.
I also want to point out how I’m handling things in front of tomorrow’s much anticipated Fed rate decision. It’s no secret that the event is likely to create volatile and illiquid conditions that are unfit for trading.
So here’s how to get around that, aside from staying on the sidelines of course.
Remember the 4-hour channel from last week? The support level from that structure held up during yesterday’s session. We already had a good idea that the level was significant, but Monday’s bounce confirmed it.
That’s the level I’ll be keeping a close eye on in the aftermath of Wednesday’s FOMC. A close below it combined with a successful retest as new resistance could offer a favorable selling opportunity.
Note that the volatility following such a momentous event can last for several hours. Keep this in mind when considering an entry. If conditions are too volatile or the spread is unfavorable, it may be best to stay on the sideline.
Should today’s session close above new trend line resistance (see chart above), the idea I just mentioned would still be alive, at least for me. That may sound surprising, but 2016 has produced enough false breaks that one more would be par for the course so to speak.
A close below channel support would expose the confluence of support near 0.6970. Alternatively, a push higher could find its way back to the 0.7340 area.
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