AUDNZD: Bounce after Breakout To Downside Causes Retest of Long Term Bearish Trend Line
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 1.1357 (as of publication). Last week, we discussed a developing triangle formation in the pair which has since had a breakout to the down side with support eventually found near a key static level of 1.1200 coinciding along the upper line of a medium term bearish channel (point 6 in red on chart) where the pair reversed and returning up a very short term bullish line (point 7 in green) to re-test the long term bearish support line (point 2 in dark red).
In yesterday’s session a steep bullish move followed after the break above the very short term bearish line (point 4 in yellow). The long term line (point 2) which may be regained could now act as resistance especially since the line of a short term bullish support trend (point 3 in blue) is also intersecting with it near 1.1361 (right through current prices).
If resistance can be overcome and thus become support (point 3 & point 2) and the short term bullish momentum can continue (on point 7), then the lower line of a less bearish medium term channel (point 1 in magenta) may be targeted just below 1.1500 by the end of September 2013.
If resistance holds and reverses the short term bullish momentum of the last 3 sessions, then the upper line of the medium term bearish channel may be targeted again along with the very short term bearish line (point 4) and with further support near long term bullish support (point 8) near 1.1050 by early October 2013.The trend over the medium term still appears mostly bearish although short term bullish momentum may follow.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.1401 with a Limit to take profit @ 1.1464 and a stop-loss @ 1.1371 Risk/Reward Summary: Limit risk = +63 pips profit / (-37) Stop-loss risk = Gain to Loss ratio = 1.70
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.1321 with a Limit to take profit @ 1.1276 and a stop-loss @ 1.1341 Risk/Reward Summary: Limit risk = +45 pips profit / (-20) Stop-loss risk = Gain to Loss Ratio = 2.25
Medium term daily candle chart: