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Last week was without doubt one of the more volatile weeks for the Forex market that we’ve seen in a long time. On second thought, the first half of last week was extremely quiet right up until Wednesday’s FOMC statement. After the event…well, we all know what happened to the USD after Yellen took center stage.
So where does this leave us in terms of the USD and more importantly, the long-established trends across the market?
It’s hard to say really as more time is needed to see how the market digests everything. However the one thing we can control is our position sizing along with our expectations for extended moves.
That said, it may be prudent to reduce position sizes as well as expectations for trend continuation, at least in the short-term. Yes, I’m referring to GBPUSD, AUDUSD and even EURUSD. Something tells me that the extreme volatility we witnessed last week hasn’t been completely flushed from the market.
One setup that caught my attention late last week is that of the broken trend line on NZDUSD. I actually mentioned this pattern on Wednesday of last week, only to watch the market crash through support on Thursday. The market was able to find its footing on Friday, closing the week 60 pips above trend line resistance.
NZDUSD daily chart:
There are two ways to play this breakout. The first is to watch for bullish price action on a pullback to former trend line resistance, now support. The downside to this approach is that with the markets so volatile, there’s a chance that Friday’s move was nothing more than a false break.
The second and more prudent approach is to wait for a 4 hour or daily close above the .7612 level. This level has acted as key support and resistance for months and is also the level that needs to be broken to confirm the double bottom between January and February.
Once this level is broken we can begin watching for bullish price action on a retest as new support. Key resistance can be found at .7890 and .8030.
Summary: Two ways to play NZDUSD this week – 1) Watch for bullish price action on the 4 hour or daily time frame on a retest of former trend line resistance or 2) Wait for a 4 hour or daily close above .7612 and then watch for bullish price action on a retest as new support. Key resistance comes in at .7890 and .8030.
On the back of last week’s NZDUSD rally, NZDCAD also made an important break, closing above .9470 for the first time since May of 2014. The pair had previously struggled to close above this level on the daily time frame in June and July of last year as well as February and March of this year.
With this break comes the potential to watch for bullish price action on the daily time frame as the market retests former resistance as new support. A move higher could see sellers step in once more at .9650, which represents a multi-year high for the pair.
Summary: Watch for bullish price action on the daily time frame as the market retests former resistance as new support at .9470. Key resistance comes in at .9650.