NZDUSD: As Bearish Pressure Builds on .7700 This Key Support Line Is Tested Yet Again
The daily candle chart below shows the medium term price history of the New Zealand Dollar (NZD) versus the United States Dollar (USD). This currency pair is known as NZDUSD, and trading around .7721 around time of publication today.
Last time this pair was reviewed was in August in Ideas You Can Trade as the trend had then become bearish. Although it may appear that NZDUSD has been the most resistant to USD strength in the last few months, most of the gains the pair had against the dollar had actually been given back between the July 2014 high under .8900 and the September low near .7700.
Since then the pair has made three subsequent lower-lows, with the latest on December 9th near .7600. This bearish pressure is continuing to build as a key support area near .7700 is retested today. If this support area fails the next stop should be closer towards .7500.
The lower support line of the medium term bearish channel has turned into the resistance line of a new bearish channel which has formed just below it taking the highs and lows of the last three months.
This means the channel transposed lower or the trend is just moving lower in two parallel channels (although they are not equidistant) and thus the trend is the same but has just shifted even more bearish - and will likely continue if support fails. For a bullish breakout the upper line of the latest bearish channel must be overcome.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .7805 with a Limit to take profit @ .7899 and a stop-loss @ .7753 Risk/Reward Summary: Limit risk = +94 pips profit / (-52) Stop-loss risk =Gain to Loss ratio = 1.80
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .7698 with a Limit to take profit @ .7648 and a stop-loss @ .7741 Risk/Reward Summary: Limit risk = +50 pips profit / (-43) Stop-loss risk =Gain to Loss Ratio = 1.16
Medium term daily candle chart: