NZDUSD - Retracement Before More Downside MovementWith the DXY in a crucial area laying in line with the 78.6 % Fibonacci level as well as a potential head & shoulder pattern, we may see this pair shoot to the upside. However, we have breached the descending trend line and closed above. This may be a false breakout or we will see a break & retest to push price higher for the USD. If the latter occurs, we should see NZDUSD plummet.
Looking at the daily timeframe on NZDUSD, we saw a fakeout spiking 70 pips above the descending trend line, however we saw previous resistance met, looking left, and saw a sharp decline to the downside. We then came up to test resistance which we then rejected, ( this was also a 38.2% Fibonacci retracement. If you drop down to the 4HR timeframe, you will be able to see a double spinning top / doji formation off this zone showing price exhaustion and a potential reversal.
At the time of writing this article, we are currently respecting the ascending trend line and a minor support level. I have the 61.8%/78.6% Fibonacci marked up in blue as my desired entry to short this pair. Being in a pennant, we are currently consolidating and we can expect a breakout. I favour short, however I will look for a break & retest of the descending trend line incase DXY weakens which will then allow us to short USD pairs as well as buy Gold.
The EMA's have also recently crossed over as well as dropping down to the 4HR, we can see they are touching each other now and we can expect a new downside leg. The creation of a new range of lower lows and lower highs, rejection of trend line and resistance as well as the Fibonacci retracement are all used for confluence or more confirmation.
I will remain patient and look for a high probability , high risk/reward trade. Psychology and risk management is key to being consistent and profitable. Have a great week !
