NZDUSD could be one to watch as the price action on the weekly timeframe suggests we could be seeing a key reversal pattern.
The Head and Shoulders is a popular reversal pattern in the forex markets and can lead to some big changes in a trend.
Hi, and welcome to this Blueberry Markets video update with me, John Kibbler, Head Currency Analyst.
In this video, we will take a look at NZ Dollar vs US Dollar because the head and shoulders pattern could be forming on the weekly timeframe.
Typically, we won’t look at this until the start of next week. However, we’ve seen a bit of resurgence in the US Dollar today. And even through the European and the US session, we saw that US Dollar strength re-enter the markets.
Now, we’ll have a little look at the NZ Dollar and the key levels surrounding this market.
If we look at this weekly timeframe, we can see that the price could potentially form a head and shoulders pattern. We talked about this market and about the key support sitting all the way down at 7013 recently.
It seems that if we do close like this at the end of the week, we could see some further downside to that key level that we spoke about.
Head and shoulders pattern
The neckline of the head and shoulders pattern is a little bit higher, around 0.71. We can see that the market has recently found support around these areas previously. We need to see the price break below this level to confirm the head and shoulders pattern, then look for further shorting opportunities on some trend-trading markets.
If I go into the daily timeframe, we can see that the price is bouncing from this key area. The reason that this is a key level is because it is a large institutional level.
When we look at the institutional volumes within this impulse move, there is a large volume level sitting around 7252. It looks like the institutions have defended this level for the past couple of days. The market moved to the downside. This consolidation pattern is where institutions build up large positions.
The market then broke lower, showing us that the sellers have won in this consolidation. This means that institutions are selling this market, and then the price has pulled all the way back up. This gives them a secondary opportunity to add into their positions.
You can see that this is clearly rejected in this area. We’ve seen quite a lot of downside from this point, and a significant bearish move as well, which suggests that we could see that continuation.
One thing that we could look for to continue looking for shorting opportunities is the change of trend.
So, we have this trendline support running through this channel. If the price can break through this area and break through this low, that could be an opportunity to start shorting the market.
Alternatively, we can go down into that four-hour timeframe. If the price can breaking through some lows – or give us an early sign that the price is going to break lower – then we can look for short-term opportunities on trend-trade.
If I bring in the Fib tool, and because we’re in this uptrend on the four-hour, I’m going to go from this swing high down to this swing low. You can see that the price is currently reacting to this 23.6 Fibonacci level.
If you watched the EUR/AUD video yesterday, we spoke about this level being quite crucial in trend trading opportunities.
If the price was to close below this 23.6 Fibonacci level, then it would suggest that the market has retraced deep enough that we’re starting to see sellers take control of the market.
Suppose the price were to drop below the 23.6 Fibonacci and close below, I would expect an actual continuation of the downtrend on the daily timeframe at that point. If the price doesn’t close below this area and we see rejection, then I would need to wait for more confirmation at that point.
Keep an eye on this 23.6 level. It lines up with the 0.7180, which has been the key support and resistance lately.
We need to wait for the reaction here. As I’ve said: wait for the breakout. If the price does break at this trend line and breaks through this low, around 0.7152, then we can start looking to trade this downside pressure.
We could see a key head and shoulders pattern forming on NZD/USD this week, and we’ll keep you updated as usual. I’ll speak to you soon.
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