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Do you use currency strength and weakness analysis in your trading?
It might be the missing piece of the puzzle in your trading toolkit.
In this video, we use the S&W analysis to identify the potential trending pair of the week.
Today, we’re going to take a look at a strong currency against a weaker one.
NZD/CHF
When looking for a trending pair, we need to identify a strong currency against a weaker one. Recently, we have been talking about the weakness in the NZ Dollar and the potential strength in the Swiss Franc. By isolating these two currencies into a table, we can see the two currencies diverging and crossing over each other. This could show a downtrend forming on the NZD/CHF currency pair.
Recently, we saw the NZ Dollar lose significant strength.
I isolated the NZ Dollar and the Swiss Franc. Recently, Kiwi topped out and started to drive lower, and the Swiss Franc bottomed out at minus sevens, and strengthened, which caused NZD and CHF to cross.
When the two lines cross, it tells us that there could be a downtrend forming on this particular pair.
Daily timeframe
In the daily timeframe, we can see that the price broke through swing lows, forming a lower low. When a market does that, it suggests that we will see lower highs being formed, and another a move lower.
In the daily chart, the market is now forming lower lows and lower highs, confirming the downtrend. We can also see that there is a strong demand zone below which the market will likely want to retest as this is where institutional volume will be resting.
Looking at this daily timeframe, the price has come back up into an area. I would have liked to see a deeper retracement, but we may not get that because the Kiwi is so weak.
I want to identify a couple of areas where you can get short and where the price could go to.
The price could go to an area below. The reason is the price found some significant support, then a large rally from the market on NZD/CHF.
Opportunities at resistance levels
In the past, the market rallied about three times. Then the market broke out, and now we’re retesting it, around the 0.66 as the key area.
Going down into the four-hour timeframe, we can see the demand zone in finer detail. We can see the strong buying activity down at the lows. The 0.6600 level was used as support and is where the marker is currently finding resistance.
We can look for a bearish price action. At the moment, we have a bearish engulfing candle forming, which could be a trigger for potential short opportunities.
You could look for a trendline break. It could be two lows as your trend line support, then wait for trendline breaks.
Alternatively, you could go to the lower timeframe. If I were to go down to the hourly timeframe, the price has consolidated, then formed a double top pattern at the 0.66 level. The price has come up, and we are getting some selling pressure from that area.
In the hourly timeframe, we can see that the market has formed a common reversal pattern called the double top. This shows us that there is a strong selling activity at this level and if the price were to retest this point, we would see a further increase in selling. Alternatively, we can wait to see if the trendline support will break to confirm a change in the higher timeframe trend.
I’ll be looking for the price to potentially pull back into the 0.66 area where we’ve already seen a little bit of a sell-off to get short.
For stop losses, you’ll want to cover above your highs because the risk is to the upside. However, strength and weakness suggests that this market could break lower. Alternatively, look for an end-of-day position if the market forms a bearish candlestick.
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