AUDNZD: Triangle Formation may Enable Break-Out to Either side of Bearish Resistance
The medium term chart below shows the Australian Dollar (AUD) versus the New Zealand Dollar (NZD). This currency pair is known by the symbol AUDNZD and is currently trading near 1.1359 (as of publication) and near session lows for today. An assymetrical triangle formation has developed which can be seen by looking at the short term bearish resistance line (point 4 in yellow on chart) where it meets with the short term bullish support line (point 3 in blue).
At about the middle of these two lines where the pair is trading, happens to be where a long term bearish support line (point 2 in dark red) is cutting through. If both long term bearish support (point 2) and short term bullish support (point 3) fails to prevent a further decline, then a target on the upper line of a steep medium term bearish channel (point 6 in red) may follow for the pair, and with long term support (point 8 in dark green) further below – closer to 1.1000 over the medium term.
If resistance fails (point 4) and a break-out to the upside follows, the bearish medium term channel may be re-targeted back near 1.1500 in the short term. Although the overall trend was previously noted as bearish during an article on the pair in early August 2013, it had since had a slight correction. However the bearish momentum seems to be returning as prices are below long term bearish support line (point 2) as of recently.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.1420 with a Limit to take profit @ 1.1517 and a stop-loss @ 1.1340 Risk/Reward Summary: Limit risk = +97 pips profit / (-80) Stop-loss risk = Gain to Loss ratio = 1..21
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.1330 with a Limit to take profit @ 1.1270 and a stop-loss @ 1.1370 Risk/Reward Summary: Limit risk = + 60 pips profit / (-40) Stop-loss risk = Gain to Loss Ratio = 1.50
Medium term daily candle chart: