Yesterday’s price action saw NZD/USD form a bearish pin-bar reversal pattern at a key area of resistance. Let’s look at the quality of this sell signal…
Earlier this week, the U.S. dollar had weakened across the board after August’s ADP employment report revealed lower job creation than expected, and the second estimate for 2Q GDP growth showed a slower-than-forecast annual rate of 2.1%.
This U.S. dollar weakness saw NZD/USD rally up into a key area of resistance at 0.5985 to 0.6020 – an area created by the break of the May swing lows earlier this month.
The concept of broken support turning to resistance is a key characteristic of any downtrend and is applicable to NZD/USD which has been trending lower on the daily candle chart since mid-July.
During yesterday’s session, we saw the market press into the resistance area only to reverse and close in negative territory by the end of New York trading.
This bearish intra-day reversal is known as a pin-bar reversal pattern – signalling that broken support may be turning to resistance.
On the daily candle chart (below) we can see that the pin-bar has formed in almost textbook fashion:
Shifting our attention to the 4-hour candle chart below, the candles responsible for shaping the pin-bar appear somewhat less bearish, owing to a higher closing price achieved within this timeframe:
Risk management
Those looking to trade this pattern could use yesterday’s pin-bar highs for stop placement and last week’s lows would be a logical area for initial targets.
On the economic calendar we have U.S. Core Personal Consumption Expenditures – Price Index data released later today. This event carries the capacity to induce increased volatility across U.S. dollar pairs.
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