NZDUSD: Strong Short Term Bullish Momentum Encounters Short Term Bullish Resistance Two Days in a Row:
The daily candle chart below shows the New Zealand Dollar (NZD) versus the United States Dollar (USD). This currency pair is known as NZDUSD. Yesterday the pair closed near session lows despite opening higher along a newly developed short term bullish resistance line (point 9 on chart in dark green), and is trading again near session lows today after finding resistance on the same line (point 9). The pair is trading near .8168 (as of publication) which is just above a static support level ( .8160) that has recently acted as resistance yet may change now to static support.
A very short term steep bullish trend-line (point 5 in white) developed since a previous article in early August 2013 where the pair found support on a long term bullish line (point 4 in green) and parallel short term bullish support line (point 7 in blue) . If this current support line (point 5) can sustain further momentum in order to break above the newly developed bullish resistance line (point 9 ), then the long term bearish resistance line (point 6) may be targeted by late September near .8600. The trajectory of the lower support line of a previous short term bullish channel (point 3 in aqua) also intersects (with point 6) by that time and price.
If the pair cannot break above the current bullish resistance line (point 9) which has provided a ceiling for yesterday and today’s session highs, then a bearish reversal may follow along a steep bearish line (such as point 8 in red) with support targeted on the line of a short term bullish trend line (similiar in slope to point 3) just below.
Trend followers may be building long (buying) positions, whereas contrarian traders may be building short (selling) position in the pair.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .8229 with a Limit to take profit @ .8299 and a stop-loss @ .8189 Risk/Reward Summary: Limit risk = +70 pips profit / (-49) Stop-loss risk =Gain to Loss ratio = 1.42
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8099 with a Limit to take profit @ .8051 and a stop-loss @ .8129 Risk/Reward Summary: Limit risk = +48 pips profit / (-30) Stop-loss risk =Gain to Loss Ratio = 1.60
Medium term daily candle chart: