NZD/USD is Testing a Key Support Cluster around 0.8450

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NZD/USD is Testing a Key Support Cluster around 0.8450

Bearish month vs. Bullish Year

NZD/USD has either turned bearish since the 0.8835 high on the year, or it has initiated a significant consolidation period against the bullish trend it has been in since June 2013, from the 0.7683 low. The daily chart shows a sharp decline that we should respect. For now, this sharp fall suggests we may have put in a high on the year in 0.8835.

So, we have established that there is a bearish trend in the short-term against a long-term trend that started over a year ago. We have established that the short-term downtrend is one to be respected, since it was not just a brief consolidation or correction. It looks to be at least the start of a long consolidation period. Because we do not have a bearish trend outside of July’s downtrend, we should respect major support based on the long-term uptrend from 2013.

NZD/USD Daily Chart 7/31
nzdusd daily chart 7/31

(click to enlarge)

The daily chart shows that around 0.8450 we  have a rising trendline that comes up from June 2013. The 200-day SMA is also right around 0.8450. Also, based on the 2014 leg of the uptrend, it will be near 50% retracement. Also consider that the daily RSI has tagged below 30, a sign that it is oversold for the short-term.

The consideration of support is based on the long-term trend, but based on the short-term downtrend, we should limit our bullish outlook to the 0.86-0.8650 area. Here we see the 100-day and 50-day SMAs. We also see a support/resistance area here.

Assessing a Trade Plan from Support:
Let’s say a trader puts an order to long NZD/USD at 0.8460, and a stop just below the 0.84 support pivot (also June’s low), at 0.8380. That would be an 80-pip risk that is outside of 2 separate support factors. A target of 0.86 would gives the trade a reward of 140 pips, while the 0.8650 target gives offers a reward of 190 pips. The reward to risk ratio ranges from just below 2:1 conservatively, and about 2.5:1 in a more aggressive bullish outlook.

NZD/USD 4H Chart 7/31
nzdusd 7/31 4h chart

(click to enlarge)

The 4H chart shows that the market is bearish, and offers no sign that it will reverse, although the bullish divergence with the RSI suggests the market might slow down a bit. With the NFP looming for Friday, we can expect some near-term consolidation.

If price pops back above this week’s high of 0.8560, the bullish swing toward 0.86-0.8650 is probably already materializing.

Otherwise, if it dips after the NFP, see if the 0.8450 area finds buyers. If we see the attempt to breach below 0.8450 rejected, we can have more confidence for the bullish attempt toward 0.86-0.8650. Still, see if we can find an intra-session price bottom before considering a buy from the current support cluster.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.