NZDUSD: long term bullish support line fails, testing re-entry of bearish channel
The daily candle chart below shows the NZDUSD pair breaking below a long term bullish support line (point 4 on chart) in the current session and trading near session lows coinciding on a short term bullish support line (point 7) which is parallel to the long term line (point 4) just above it.
The pair is trading near .7801 (as of publication) which also happens to be upon the support line of a newly developed short term bearish channel (point 2) and the upper resistance line of the medium term bearish channel (point 1) which it may re-enter if this line fails.
The upside breakout of the medium term channel was anticipated in a previous article on the pair in early August 2013 – which has since come to fruition along with the attempt to regain the very short term bullish channel (point 3). After failing earlier this week to regain this line (point 3) a reversal followed on a steep short term bearish channel (point 8) which still contains the pair and could provide bearish resistance.
If a reversal upon either of the bullish support lines (point 7 and point 4) occurs, then the pair may avoid re-entering the medium term bearish channel (point 1) for the time being. Although this could be a dead-cat bounce (on either line) and the bearish momentum may follow, any newly developed short term bullish line (such as point 3) could sustain a recovery- including a steeper bounce to test the resistance line of the steep short term bearish channel (point 8).
If support is not found near current levels (point 4, point 7 or point 1) then a re-entry of the bearish channel (point 1) may follow with a target near .7700 and .7450 (point 5) further below.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .7850 with a Limit to take profit @ .7890 and a stop-loss @ .7818 Risk/Reward Summary: Limit risk = +40 pips profit / (-32) Stop-loss risk =Gain to Loss ratio = 1.25
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .7758 with a Limit to take profit @ .7701 and a stop-loss @ .7796 Risk/Reward Summary: Limit risk = +57 pips profit / (-38) Stop-loss risk =Gain to Loss Ratio = 1.50
Medium term daily candles: