The NZDUSD Bullish Breakout with a Flavor of a Bearish Turnaround

The FOMC statement, which will be released on Wednesday the 18th of February (2pm ET), could set the tone for the rest of the trading month (more explained here). Traders need to realize that any ideas for a trade setup prior to the FOMC are vulnerable to a sudden change in sentiment due to the statement itself.

In today’s post I want to discuss the NZDUSD currency pair. Despite the presence of a bigger downtrend the Kiwi has been keeping its ‘head high’ and not moving to fresh lower lows.

The currency pair managed to bounce at the 50% Fibonacci support level with an impressive accuracy (within a margin of 0.6 pips). The subsequent rally faced a decent sized resistance. Ultimately an ascending wedge chart pattern became visible and price then managed to make a bullish breakout above it.

17- 2- 2015 nzdusd 4 hour

THE BULLISH TRIGGER

The run up drove price up towards the -27.2% Fibonacci target where price halted for a few candles. However the Kiwi seems to be ready for a bullish continuation: the 4-hour candle has a decently strong candle and closed near the candle high. Both developments signal that the 0.75 round level is a line in the sand which will encounter a bullish break.

There are a couple of options when trading a breakout.

  1. Wait for the retracement of a trigger candle and take the setup about half way of the candle;
  2. Wait for a breakout candle that can push and close above a key level, which for the NZDUSD is the -27.2 target at 0.7525.

In all cases the main target is the -61.8 Fibonacci target at 0.7618.

THE BIGGER PICTURE

Despite the bullish momentum on the 4-hour chart, there is a strong downtrend taking place on the daily chart. Without the concept of multiple time frame analysis, a Forex trader is unaware of the lurking danger and might set their take profit way too high for such a long setup.

When using the daily chart it becomes clearly evident that any longs should be tremendously cautious of the probability of price turning back into its downtrend when it reaches the confluence of resistance at 0.7620. This level is a key decision moment for the currency pair. A true bounce or break spot – and break could mean that the uptrend is wrestling back control. In any regard another key zone is the 0.7718-0.7736 resistance layer and ultimately the top at 0.7890. Even if price breaks these resistance layers, it will most likely not break through it without some type of pullback before finding new buyers.

17- 2- 2015 nzdusd daily

What do you think of the NZDUSD?

Do you see the same upside breakout occurring before the larger down trend continues?

And do you see the larger down trend take place as well or do you envision a grand uptrend?

Let us know down below!

Thank you for sharing this blog post. I wish you Happy Hunting!

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